Equity Markets
US equities finished mostly higher but of their tops as energy shares started to take profits following a Presidential Tweet promising to announce his decision on the Iranian nuclear deal Tuesday at 14:00 EST. WTI retreated from 3-year highs, and equities appear to have echoed that weakness. Despite the strong US economic fundamentals within a Goldilocks zone, there seems to be no escaping geopolitical uncertainty that continues to run at peak levels.
Oil Markets
Oil market continues to run tight suggesting that reinstating the US primary sanctions against Iran will send the delicate balance into disarray and oil prices will rocket higher.
The delicate balance is part and parcel of OPEC/NON-OPEC accord, robust global demand dynamics and Venezuelan adversity as its reasonably safe to say that the supply cushion is deflated. Suggesting that even without Iran sanctions Oil prices will remain firm
The apparent tail risk, given the market’s overbought condition, we could be on for significant kneejerk reaction if the President walks back the more boisterous elements of
hawkish Iran rhetoric
With the Presidents decisions less than 24 hours away, everything that needs to be said has already been said.
Gold Markets
The Gold market continues to be caught between opposing forces, the surging US dollar and geopolitical uncertainty. The US dollar is having the most negative impact on prices. Since mid-April, the dollar has been immensely supported by a sudden downturn in global economic data, specifically in Europe which has left the US economy the last man standing regarding economic growth. While Forex traders continue to decide whether they’re just renting space in this USD dollar rally (little more than a short squeeze) or buying into full-heartedly, the overabundance of geopolitical risk should continue to attract haven appeal for the yellow metal on dips.
Currency Markets
The USD dollar continued to climb overnight as another series of EU economic data missed its mark toppling the EURUSD to a new YTD low at 1.1896 before recovering to close flat for NY session. The softer run of European economic data has some thinking the ECB will kick the can down the road and delay the end of their bond purchase program.
Besides the disappointing European economic data, there were hawkish inferences from Fedspeak along with nascent political flashpoints as the odds of a snap Italian election are increasing.
Given no follow-up presser to last weeks Fed minutes, the market is looking at this week’s Fedspeak for a more precise read on last week’s FOMC. Overnight Fed member Barkin spoke, sounding quite hawkish especially considering the market’s recent read on minutes , his comments supported the current stronger dollar narrative.
But overall, it’s worth noting that the bulk of the move did occur in holiday-thinned UK trading conditions with little to no follow through in the NY session.
The Malaysian Ringgit
The differing election market dynamics are indeed setting up for some element of surprise with most foreign investors considering the election to be uneventful while locals are growing increasingly uncertain. But this is more about the margin of victory and securing a robust mandate for BN, and this is where the balance of risk lies.
That market reaction is what is critical, with a probable knee-jerk weakness on Malaysian assets on a tightly contested result but a subtle appreciation on a more decisive victory. And then the broader market dynamics will continue to take charge. Malaysia is better positioned due to higher oil prices to whether the abundance of negative external factors that are driving market sentiment. Asia EM currencies remain out of favour in the face of a resurgent greenback and higher US yields. Risk sentiment remains in flux, but the most prominent hurdle that the market has completely ignored is the fact we are getting ever so close to the removal of accommodation. Which could be a massive negative for EM markets, particularly in Asia where the bulwarks of commerce Korea and China are showing some wear and tear at the seams.
