Equity Markets
Equity markets continue marching higher with the S&P 500 and the Nasdaq yet again trading in record territory. Indeed, investors confidence is soaring as optimism builds over the likelihood of the inevitable US trade deal with a crucial trade partner, Canada. Undeniably, the prospects of a revised trilateral trade agreement between the US -Canada and Mexico have put investors on cloud nine! Undoubtedly this effervescent “risk on ” environment should prove to be very constructive for investors across the global spectrum.
Oil Markets
The weekly Energy Information Administration inventory report came in bullish for oil prices. Total crude oil inventories showed a bigger than expected draw at -2.566million vs -0.967million consensus. Not surprisingly reversing out all the negativity from Tuesday’s API survey. Besides, there was also an excellent inventory draw in the oil by-products, both gasoline and distillate. But given the headline report was less contracted than the prior week’s draw, further gains could be a grind in today’s session.
While WTI is holding onto earlier gains after the DoE inspired move, but the primary bullish factor remains rooted in Iran sanctions
Gold Markets
Gold initially came under pressure overnight as real yields moved north and the USD showed signs of making a revival, but the gains didn’t hold in New York despite a revision higher in 2nd Quarter GDP. But with both the PCE and GDP prices remaining static, it offered little encouragement for dollar bulls but provided a glimmer of hope for Gold investors. However, in the absence of any significant catalysts and with the Feds committed to status quo normalisation, real yields moving higher and equities continue to soar, who wants gold?? Very few !! Which suggests topside moves will continue to be faded.
Currency Markets
The dollars gains in Asian and early London sessions didn’t stick in NY, below are a few reasons why.
British Pound
Currency markets were wholly focused on the goings on in Sterling as positive Brexit headlines were the primary trigger.
” EU chief Brexit negotiator Barnier says the EU is prepared to offer Britain a bespoke partnership, unlike any other third country.”
The domino effect set in after the short end of the STIRT curve sold off on expectations of a more Hawkish BoE with Brexit tensions easing, which then catapulted GBPUSD above 1.3000 where its holding firm above that fundamental psychological level in early Asia.
Of course, we could expect a period of consolidation but if these green shoot positive developments bloom, we should see the “Cable” ramp extend much higher in the weeks to come.
The Euro
The break back above 1.1670 sparked waves of topside interest on the positive Brexit headlines. Despite the positives, 1.1750 should be a tough nut to crack given that if anyone who is bearish Euro will be looking to sell on upticks. Italy is still in play, despite some EU friendly overtones coming from the technocratic faction which should temper upside momentum.
Australian Dollar
The Australian dollar is treading water despite effervescent risk markets. But Westpac adjusting their variable mortgage rates higher due to funding costs abrading margins does raise the spectre of mortgage defaults, and one would assume the RBA is not amused.
We’re certainly on the edge of a slippery slope amid this bearish Aussie backdrop with a brewing political hotpot threatening a cherished AAA sovereign rating. But the RBA will ultimately struggle to hold their neutral tilt should any signs of housing meltdown materialise.
Canadian Dollar
Canadian foreign minister Freeland is set to meet with the US trade representative Lighthizer are attending, and Dairy is reportedly the first focus topic. Lots of positives in the Loonie space but tomorrows GDP will be the key for a broader move to 1.2800.
Japanese Yen
The happy risk on the environment has traders testing the top of the range once again, but the lack of excitement is telling as I suspect there are far more exciting trades to be had at this juncture
The Yuan
Still on the highlight reels but trader appears are waiting for something to break on the trade front. As a result, they remain caught between two opposing forces, position positively for the future US-China Trade deal or negatively over waning China growth prospects but ultimately interest rates and economic fundamentals will carry the day short-term and dips still look attractive.
ASEAN Currencies
It feels like economic risk recovery is slowing given the apparent lack of urgency from Trump administration to get this US-China trade agreement inked. But local exchanges are still chugging along riding the US equity market coattails. The pessimist in me says to expect a long and winding road when it comes to the ratification of a China agreement after all in the eyes of the US administration; China is a currency manipulator.
Singapore Dollar
Attention shifts to the Singapore Dollar today with the vital CPI report on the docket. As with increasing volumes on the offshore Yuan, there has been significant interest in the local unit so there will be a great deal of attention where support 1.3600 support will be a primary focus for intraday trade.
The Malaysian Ringgit
Bond markets are trading sideways which is likely a function of the upcoming MPC on September 5 and tomorrows National Day holiday. As a result, the USDMYR is trading as equally sideways. If anything higher energy prices may provide a fillip heading into the long weekend but the markets are unlikely to make a meal out of this bounce if at all
