Markets
U.S.-China trade conflict remains a critical near-term narrative for the equity market and with Washington a Beijing coalescing around Phase one of the trade deal, the market has started pricing in bullish expectations around Phase 2 which is thought to include a complete withdrawal of the proposed December U.S. tariffs.
Given the steady diet of "risk-on" narrative this week, the deluge of economic data will be crucial to hold sentiment in check. We will see plenty of data in the form of EU CPI and GDP as well as U.S. PCE, ISM and payrolls. The Fed is fully expected to cut tomorrow, and all eyes will be on clues for any future moves which will be 100 % data dependant. I suspect trade and risk sentiment consolidates here until the market sees if data is bottoming and comes to grips with Fed forward guidance.
Gold
Gold continues to struggle for traction against the backdrop of higher U.S. bond yields. There is plenty for markets to focus on this week with the main highlight Wednesday's Fed meeting. Another 25bp cut seems in little doubt, but after that, the picture becomes much more uncertain.
Traders are pulling back from the narrative of more aggressive Fed easing in 2020 which is very harmful to Gold markets as Gold and higher interest rates can't mutually co exit in a beneficial way for Gold prices.
The current pricing suggests that the market is positioned more fairly for a no further cuts scenario (i.e. mid-cycle adjustment is over) which suggests Gold could bounce higher if the Feds surprise dovish. But that's a pretty big ask given the great divide of hawkish vs dovish views on the FOMC.
Oil Prices
Oil prices are sliding as Russia continues to hold OPEC hostage by not supporting deeper production cuts. And when combined with the rise in Cushing inventories, oil traders’ bears have immediately reverted to their favorite pastime of stalking sluggish demand amid expanding lists.
Indeed, after four years of trying and failing to manage oil prices consistently higher. Only to end up subsidizing U.S. oil producers to the tune of 12.6 million barrels per day, the highest production level the U.S. has ever seen. It's difficult to see how Russian oil Czars are happy about this current situation.
The British Pound
GBP remains in somewhat of a holding pattern, ahead of yet another crucial parliamentary session today, when UK PM Johnson will propose a bill to amend the next general election date to Dec. 12. It feels like every 24 hours is an essential day in the realm of pound. The chance of an early U.K. general election continues to rise. The EU-27 have offered a Jan. 31 'flextension' to Article 50 negotiations, paving the way for a Dec. 9 or 12 election. An election push presents increased two-way risks for GBP into an election that will be played out like another BREXIT referendum. There is technical resistance initially into 1.2865/80. To the downside, there is minor support into 1.2800, followed by 1.2750.
Japanese Yen
With SPX vs USD/JPY 60d correlation is at a four-year high it triggered a test of offers above 109 today. But those offers were rather substantial as a plethora of profit-takers came out of the woodworks on the break. Profit-taking could continue a less than convincing break of 109, but buying should remain intact on any pullbacks toward USD/JPY 108.50 given we're in a risk revival scenario.
The Chinese Yuan
It's still a tug of war in USD/CNH around 7.05-7.07