The much anticipated ‘transcript’ of President Trump’s phone call with Ukrainian President Zelensky was released overnight.
Having read it, there was an element of Biden-bashing going on, no doubt, and an offer to get in touch with the U.S. Attorney General and Mr Trump’s personal lawyer. Mostly it seemed to consist of Mr Zelensky flattering Mr Trump, which is as good a strategy for getting a tremendous economic deal with the U.S. as any.
It wasn’t quite the chicken soup for the soul that Democrat’s impeachers needed to my uneducated eyes. I feel that the President, in full Teflon-Trump mode, will once again slip from their grasp, and that’s clearly what the financial markets thought as well. Wall Street was rallying hard after the previous days sell-off along with the dollar as gold slumped.
In a data vacuum week, Presidential comments and news headlines were always going to produce dystopian price action across financial markets. The overnight rally in Wall Street and the dollar sharply reversing the previous days sell-offs. In this case, President Trump reversed his China belligerence at Tuesday’s U.N. session, commenting that a China trade deal ‘could happen sooner than you think.’ Transcripts and the previous day were quickly forgotten as the street piled into recovery trades. Namely, buying dollars and U.S. equities.
If nothing else, it should remind readers about what the rest of the world is anxious about, and it is not impeachment. It is off course, a U.S. and China trade deal. As markets get slapped around by headline ping-pong this week, it is essential to ignore the noise and stay on target; and that target is trade.
The cupboard is well and truly bare on the data front in Asia today, with only Singapore Industrial Production at 1300 SGT. It is expected to fall to 0.1% MoM underlying the effects of the trade war on the region. It is a volatile data series, however. This evening U.S. GDP data is released and is expected to show a slowing of growth to 2.0% QoQ. A splendid figure if you are a European, average if you are Asian. Beauty is in the eye of the beholder.
Equities
Wall Street rallied aggressively in New York’s afternoon following Trump’s ‘sooner rather than later’ comments. The S&P 500 rose 0.61%, the Nasdaq unwound the previous day’s rout, rising 1.05% and the Dow Jones lifted 0.61%. Interestingly U.S. ten-year yields rose slightly as well suggesting a lot of short-term FOMO positioning is bouncing between equities and bonds this week.
The FOMO driven rally in New York is spilling into Asia unsurprisingly, with the Japan Nikkei rising 0.48% and the South Korean Kospi up 0.58%. We would expect that trend to continue across regional markets as they open baring any headlines.
Hong Kong may be the odd man out and underperform. With China on holiday next week for its 70th birthday, bookings and arrivals of Chinese tourists to the SAR have plunged apparently. The knock-on effect from the student protests may well be making its presence felt on the mainboard.
Currencies
The dollar staged a mighty comeback overnight as President Trump’s trade comment as both U.S. equities and bond yields rose, supporting the dollar. The dollar index rose 0.70% to 98.97 with the gains most noticeable against developed market currencies.
The Euro fell 0.70% to 1.0950 and seems poised to attack technical support at 1.0925.
Sterling fell 1.15% to 1.2360 as Parliament reconvened after the Supreme Court overturned the Government decision to suspend it. With the political outlook ahead of Brexit murkier than ever and an election seemingly inevitable, any good news is well and truly baked into GBP now. It will probably take a Brexit agreement signed and sealed to give it new upside momentum. 1.2600 remains a formidable resistance region.
Regional Asian currencies should disentangle themselves from the G-10 today and rally slightly against the dollar on trade hopes. Having a much high beta to world trade and China, in particular, President Trump’s comments will have been welcomed by Asia. Beware President’s bearing gifts though; this week has proven we are only another comment away from an abrupt 180-degree shift in short-term sentiment.
Oil
Oil had a double whammy overnight as faster than expected recovery in Saudi Arabia oil production, and a rise in official U.S. crude inventories to 2.4 million barrels, sent both Brent and WTI lower. Brent crude fell 1.15% to $62.50 a barrel, and WTI fell 1.35% to $56.50 a barrel.
Overall though, the drops overnight were moderate given the weight of negative factors against them. Oil traders probably held off selling more aggressively because of Trump’s trade remarks. Nevertheless, both Brent and WTI are performing poorly on a technical basis with each minor rally lower than the previous one.
Baring new inputs to adjust price expectations, both contracts are in grave danger of fully unwinding their Saudi attack rallies and retesting their pre-attack lows, around $60.00 and $54.00 respectively. The market is a harsh mistress.
Gold
The same could also be said of gold, as short-term FOMO fast-money trading saw a high-speed rotation out of gold, and into equities, on Trump’s trade comments overnight. Gold fell nearly 29 dollars or 1.90%, to $1503.60 an ounce.
A sense of disbelief over last nights price action probably highlights more than anything, the lightness of short-term positioning in gold, as well as the streets vulnerability to headlines on a quiet data week. I said on Monday, that the bravest strategy for this week could be staying out and watching from the side-lines. Gold’s price action appears to be vindicating that.
We are now back into the middle of our previous $1480.00 to $1530.00 an ounce range and are set to remain here for the rest of the week. A China holiday next week and an approaching weekend could see some risk hedging buying emerge in Asia. More likely, gold traders will probably be content to retreat to the side-lines to lick their wounds.
