Neutrality is not stability
A sense of uneasy calm pervades the financial markets ahead of the resumption of the US-China trade talks in Washington today. Judging by the overnight price action, most asset classes appear to have reached a point of neutrality as the street moves to wait-and-see mode. That said, from here the markets could move sharply, either way, depending on the news flows, with equities and oil the most vulnerable to the outcome of the trade talks, whether that be concrete progress or Presidential tweets. Neutrality does not mean stability in this case, we’re merely seeing a temporary balance has been achieved.
Wall Street finished almost flat after a choppy session with the S&P 500 falling 0.16%, the Nasdaq down 0.26% and the Dow Jones unchanged. Currency markets were much the same story with the dollar index unchanged overnight. The most noticeable mover being the British pound (GBP), which gave up all of its recent gains, falling 0.45% to 1.3005 as hopes of a cross-party Brexit deal faded.
China releases its inflation data at 0930 today, followed by Japan consumer confidence at 1330 hours, both Singapore standard time. Neither is likely to cause more than a passing ripple as the street awaits the main event in Washington DC today.
Currencies
As stated, the GBP was the primary mover overnight and now lurks ominously near the 1.3000 pivot level. The New Zealand dollar (NZD) also stabilised at 0.6585 after its Reserve Bank-induced sell-off, with most of the dovish news baked into the price for now.
It is hard to see Asia doing anything but following Wall Street’s lead in today’s session, likely preferring to wait on the sidelines for events in DC to take their course.
Equities
China, Hong Kong and Japan all fell by just over 1% yesterday, and this cloudy tone may continue today as investors lighten holdings ahead of this evening’s trade talks.
Oil
Oil gained some temporary relief as official US inventory data showed a surprise drop. Brent Crude rose 0.60% to USD70.50 a barrel and WTI jumped 0.97% to 61.95. We expect the rally to be transitory with oil the most vulnerable to sharp moves – up or down – on trade talk news.
Gold
Gold fell three dollars to USD1,281.10 an ounce overnight marking another zero volatility session. Most concerning is the complete lack of risk-aversion rallies, and if the trade talks make positive progress, the downward pull on gold could grow a lot stronger. Key levels remain USD1,265.00 and USD1,290.00 an ounce.
