Trade talks: optimism or cataclysm?
The Asian and European stock markets rose yesterday with China a stand-out, climbing over 3% as markets set multi-month highs. Oil also rose in Asia before giving back most of its gains, following on from a strong performance from Wall Street on Friday. And the source of all this optimism? The anticipation of substantial progress in the US-China trade talks.
The rallies were impressive given the talks ended last week without any concrete results and have yet to even recommence in Washington this week due to the US public holiday. Without sounding like a damp squib, there is now a vast amount of “optimism” baked into currency, stock and energy market prices globally and precisely zero concrete detail. The unwind, should no deal be struck, could be very ugly.
US trading fizzled out after the European close, which implies a quiet start for the regional markets today. The data calendar is very light with only the Philippines Balance of Payments and the German ZEW Survey to set traders’ pulses racing. The second half of the week sees the pace quicken with short-term moves today likely dictated by headlines rather than data.
FX
The US dollar gave up more of its recent gains in listless quiet trading driven by position lightening on a US holiday rather than a sentiment change. That theme will likely continue in the regional markets today given the lack of drivers from Wall Street.
One standout has been the Thai baht, which rallied strongly yesterday following a stellar 4.10% GDP print. The THB has been on a flyer against the dollar over the last two weeks and now sits at 31.235 this morning, just above strong technical support at 31.170. A break of this level implies more strength ahead for the THB.
Equities
With Wall Street closed, we anticipate a tranquil day in Asia with the positive underlying tone to continue. And with a lack of direction, headlines could cause short-term volatility as we await the main events of the second half of the week.
Oil
As with equities, we expect the bullish tone to continue when it comes to oil, but with the US away, trading will be subdued.
Gold
Gold climbed USD6 overnight to nine-month highs at USD1,326 an ounce. This is likely a dollar story as gold benefited from the lightening of long dollar positioning globally. That said, gold is now testing resistance in these price regions, and the technical picture remains extremely constructive for higher prices going forward.
