Oil Update
Brent crude continues moving sharply lower on today triggered by the deeper sell-off on global equities on concerns rising interest rates could severely derail global economic growth. But more specifically DOE monthly Short-Term Energy Outlook revised non-OPEC supply higher for 2019, which is leading more support to the supply side of the equations.
So with prospects of lower demand and additional supply in 2019, there has been no place to go but lower as bullish bets are heading for the exits with nary a substantial bid in sight.
Now if we get a bearish surprise in tomorrows DOE weekly status report, selling will intensify two folds. With tail risk mounting, bullish sentiment has evaporated quickly.
Equity update
Equity markets were pulverised today as investors remain in full out retreat and even the most pessimistic of equity bears are still in shock by the sheer magnitude of the move. This meltdown isn’t just a mild case of the sniffles suggesting the latest sneeze from the US equity market could morph into a global markets pandemic.
Fedgonecrazy
Presidents Trump’s scathing and ramped up attack on the Fed has the dollar bulls retreating as even the hint of policial interference on monetary policy is unsettling also if it doesn’t lead to the Feds to taking their foot off the gas. But if these higher US rates are trigger more than risk aversion and this move turns into the next significant correction, it could give the FOMC some pause of a cause.
Yuan
Speaking of worse case scenarios
USDCNY fixed at 6.9098 today, +26 pips from last fixing and -96 pips from the previous closing at 6.9194 on 16:30 Beijing time as the counter-cyclical mechanism takes effect, but higher than everyone expected. So, another dubious fixing. Traders aren’t reading much ambiguity in today setting which is little more than a call to action for Yuan bear. The Pboc appears to be in little rush to steam the weakening tide. Despite the apparent risk from capital outflows and more equity liquidations.
The Yuan has such a far-reaching influence on regional markets but even more so as the markets are becoming very suspicious of Pboc currency policy that in the face of being declared a currency manipulator, they could discard the YCC and let the currency go (weaker)
It’s potentially destabilising for global markets as it could trigger colossal liquidation in China equities and will trigger capital outflows.
The tail risk if they did for shock value, even as a temporary retaliation to the US Treasury accusations. Eventually, they would need to intervene.
However, instead of using reserves they could sell US treasuries to raise dollars to sell back to the currency markets(USDCNH) creating a nasty feedback look that will trigger broader-based US bond markets sell-off and more equity collapse
