US Markets
After wobbling most of the day in extremely choppy markets, the US equity market finished mostly higher supported by higher oil prices and news that the US has formally sent an invitation to China to resume trade talks. But festivities were tempered as the market gave a nod to comments earlier in the week from crucial Whitehouse advisor Kudlow stated that ” important information. ” needs to be answered before celebrating. But none the less with both parties scheduled to resume trade talks it should be viewed in a positive light. AS such the USDCNH dip triggered an across the board sell-off on the US dollar as some short CNH trade war hedges unwound, gold headed back towards the top of its one month range, and Brent briefly hit $80 for the first time since May.
Oil markets
Are the Bulls are back in control?
Administration crude inventories data for last week indicated 5.3 million barrels draw from commercial crude stocks, and while lower than the 8.6 million barrels registered by the American Petroleum Institute report but a much deeper drop than analyst’s expectations. Propelling Brent briefly above the fundamental and psychological $80 a barrel for the first time since May and was equally as supportive for the WTI contract. However, both benchmarks are trading off intraday highs heading into the Asia session as the distillate inventories which increased by 6.2 million barrels last week, more than the 5.8 million barrels gain in the API numbers and excessively more than expected, slightly dampened market overexuberance as indeed much weaker demand over the Labor Day holiday was a significant factor.
There remains a lot of noise in this week’s markets, but the confluence of bullish near-term signals, Iran sanction and sinking US crude inventories should keep oil prices supported for the remainder of the week. But traders are now pivoting to the Organization of the Petroleum Exporting Countries and non-members meeting next week in Algeria.
In that light, Brent does feel a wee bit testy above $ 80, notwithstanding the immediate contract sitting comfortably in the green with a bullish tailwind. Yesterday’s comments from Russia’s Energy Minister, Alexander Novak, who stated in a leading newswire interview that the country could increase output by as much as 300k bpd in the medium-term, back to post-Soviet records seen last in October of 2016. However, he went on to say that they will not make any decisions as to whether the market requires additional barrels until it’s meeting with fellow OPEC countries. And keep in mind there is still that lingering notion that OPEC may want to keep Brent in the $ 70-80, which has been supported by the charts the past five months.
Eyes along with prayers remain directed on the US east coast as Hurricane Florence quickly approached landfall. The storm’s trajectory remains relatively unchanged from yesterday as it is expected to miss all significant refineries. And while not a substantial threat to US production it has turned traders into Google meteorologist who is trying to forecast if a Hurricane will eventually sweep through the Gulf given the numbers of tropical storms brewing in the Atlantic Ocean this hurricane season.
Gold Markets
It almost feels counterintuitive to suggest a de-escalation in US-China trade war has provided a tailwind for Gold, but therein lies the fact that Gold is trading entirely and the mercy of the US dollar. And that to judge Gold by any other metric in this environment provides an indecisive, inconclusive and highly inconsequential signal. But there will be much to be said for the USD near-term direction during the next 24 hours as currency, and cross-asset traders remain coiled to spring in either direction as the US CPI will likely set the stage for the US dollar next move.
Currencies
Beyond the headlines, much of the overnight price action could be a function of paring risk ahead of the hugely busy day with BOE, ECB, plus AUD jobs German, French and US CPIs to navigate. But everyone across the currency world is also watching to see just how definitive a signal the Turkish Central Bank will deliver to quell emerging markets bloodletting.
USDCNH sold off from 6.8725 towards 6.8270 on news that the US has sent an invitation to China resume trade talks posted and indeed the greed of the move suggest most traders were caught overly wrong and long as the USDCNH was being viewed as a primary vehicle to hedge trade war risk.
While fundamentals still support the view USDCNH higher, the unwinding of trade war hedges is undoubtedly providing an unexpected shift in near-term sentiment and led to a substantial USD dollar sell-off globally.
Also, the US PPI was weaker than expected which had the US dollar leaning slightly lower.
From the more critical picture scenario, overnight price action was a cause and effect of a myriad of events that included position trimming and a reversal of fortune for the Yuan bears.
ON the other trade war front, Mexico made headlines for seeing a “high chance” of a US-Canada compromise with Nafta, and that sent USDCAD to the 1.3000 level. Canadian Dollar has reacted favourably, and as we get down to the nitty-gritty and on any trilateral NAFTA announcement, the USDCAD could drop to the low 1.29’s in a heartbeat, but in the meantime, we could be in for more stop and go on headline risk.
Malaysian Ringgit
Higher oil prices and a weaker dollar and optimism of US-China trade relations does suggest a stronger opening for the Ringgit, but I suspect with investors in pins and needles ahead of the next 24 hours of risk. Traders will remain cautious knowing that there is that small matter of the Federal Reserve Board and the prospects of higher US interest rates which are probably are a considerable obstacle for Malaysian capital markets as higher yield in US bonds lessens the Malaysian bond appeal from foreign investors and naturally weighs on Ringgit sentiment.
