Surprising busy start even with the absence of Hong Kong in the mix
The hawkish warm-up ahead of tonight’s FOMC minutes delivered by San Francisco’s new President Daly is creating some noise today after she said late in the NY session she does think it’s a balance between hiking too fast and getting behind the curve but her remarks on the economy are strong. On inflation, the Fed is “effectively at the 2.0% target.” For potential tailwinds, however, she does name three: financial conditions, global growth, and fiscal stimulus. Indeed there will be an intense focus on the new FOMC members to gauge the hawkish vs dovish composition of the new FOMC and this is weighing across the regional sentiment as she is camped on the hawkish end of the scale.
The Yuan fix
USDCNY fixed at 6.9103 today, -16 pips from last fixing and -83 pips from the previous closing at 6.9186 on 16:30 Beijing time. The fix is much lower than market expectations triggering a sell-off below 6.91, while the usual assortment of bids was absent on the fix, but the buy on dip mentality should prevail until a definite solution on the US-China trade front is offered up. The current playbook remains intact.
Via Deutsche Bank
Going over some market notes today: Sameer Goel at Deutsche bank suggests the divergence in trend between China’s estimated intervention activities and its holding of US Treasuries is increasingly notable as Deutsche bank has rated roughly US 17 billion in FX markets intervention was offset by US 18 billion in US Treasury sales. So, this is different to my morning thoughts that the Pboc were adding to their intervention war chest, but instead, they are selling US Treasuries for currency smoothing policy.
Oil prices
Oil prices came off at the Shanghai open on profit-taking, but Brent crude remains well bid after a test of the downside for the third consecutive day on Tuesday, given the bulls some room on stops likely layered between 79.50 and 79. Geopolitical tensions amidst reports that Iranian crude oil exports have continued to decline helped support the price. But again, local Asia sentiment is wobbly as Asia equity dealers can’t shake the overhang from US-China trade tensions. But given the prevailing bullish market lean we should expect these dips to be well supported.
Gold Prices
A case of the nervous Nellies is impacting freshly minted long gold positions as US equity futures continued to move higher in early trade. Indeed, there is still some overhanging sentiment that Golds strongest correlation is a communication of the overall health of the US economy as the SPX /XAUUSD correlation should carry. So, if the US economy is doing well as transmitted through the SPX bullishness, gold will sell off. But absent in this argument is the US midterm elections which will pose a significant risk to both equity and USD sentiment.
But perhaps the hawkish warm-up ahead of tonight’s FOMC minutes delivered by San Francisco’s new President Daly is weighing on Gold market sentiment.
Asia equities
Perhaps a bit surprising is that local equity markets are not exactly knocking it out of the park this morning. I suspected they would take their lead from the US equity froth. But again, local dealers remain a better seller of risk until a definitive shift in US-China trade tensions is offered up.
