A Tempestuous Day in The Trading Pits

The market isn’t clear on what to make of the latest impeachment developments in the U.S., and this continues to increase uncertainly and could be weighing on investor sentiment.

Compounding this uncertainty is the stark reality that most of the global economy is moving in reverse while omnipresent geopolitical unease ensures the market remains in a constant wobble on a forever shifting trade war axis.

The robust U.S. economic data suggest the world’s largest economy remains on a solid foundation, adding to the U.S. dollar haven and growth differential appeal. Indeed, if US consumer were worried about the negative fall out from trade wars, it’s certainly not stopping them from making the most significant purchase of their life as US new home sales are now surging thanks to the Federal Reserve Boards accommodative policy.

However, the market does appear to be more concerned about US-China trade the and investors reaction function could significantly depend on what direction and intensity trade war winds blow. Sort of like an ambling hot air balloon.

Still, the market remains in limbo trying to decide how the ” whistle-blower ” impeachment push may impact White House decisions on trade negotiations.

Oil markets

Don’t toss the geopolitical risk premiums out with the water just yet.

Oil changed course higher after the US made public their intention to beef up air defence systems and send troops to Saudi Arabia in the wake of last week apparent Iranian state-sponsored terrorist attack. Prices rose on the fighting chance of military action which could destabilise the region and undermine global supplies.

However, also this move could be viewed as a US show of force as Iran continues to skirt its 2015 nuclear agreement which adds another layer of geopolitical risk ingredients to the mix.

However, for most of the week, and this is where the real oil price risk possibly lies. The market has been trading lower as oil bulls have been discouraged by quicker than expected return of Saudi oil output. Even more so as the market now pivots to the start of US refining maintenance season as operators switch seasonal product blends. So, the expected lower demand for oil inputs into refineries typically sees US crude inventories swell. All of which could pose a significant downside risk for prompt oil prices.

Gold Markets

Treasuries rallied Thursday led by long-end of the curve amid weakness in U.S. stocks following the release of whistle-blower complaint central to House impeachment inquiry; session highs were reached during U.S. afternoon after strong demand for 7-year note auction

However, the mild risk-off moves and uptick in geopolitical risk failed to inspire the gold markets aren’t correctly showing off its safe-haven attractions as the strong U.S. dollar is competing for haven flows and keeping gold investors on the sideline even more so as EURUSD continues to threaten 1.0900 levels.

Also nascent signs that even the most dovish central bank in the world, the RBNZ, appears to be walking back from the cliff edge of rate cut mania and when taken in the context of Fed messaging from earlier in the week when Fed’s Evans doubled down on his hawkish remarks, its not the best of near term bullish narrative for gold investors

For the time being, the $1,500 level is acting as a reliable support, but at some point, if you push against something hard enough, it could give way eventually.

Currency markets

The Yuan

The Yuan bulls may be slightly disheartened today as in somewhat of a surprise move the FTSE Russell skipped adding Chinese bonds into its flagship World Government Bond Index, But Chinese “Govies” do remain on the watch list for a possible upgrade which does take some of the stings out of the snub.

The Ringgit

Malaysia remains on FTSE Russell’s watchlist for a potential downgrade. While not the ideal scenario for Ringgit bulls it’s far from a knockout blow to the Ringgit already shaky at the knees from the trade war tumult.

The FTSE could be playing hardball while trying to call upon the BNM to reintroduce an NDF market, something that offshore bond investors have been clamouring for some time.

US Dollar

Today could be a bit of a litmus test for US dollar sentiment.

Elizabeth Warren is climbing in the election’s polls, and it’s thought that a Warren presidency would be detrimental for US asset if her wealth tax were introduced.

However, just as significantly the market will soon put the quarter-end USD funding squeeze in its rear-view mirror.

The global central banks seem a bit less eager to live below zero, as per the latest RBNZ musings.

US stocks continue to struggle at 3000 which doesn’t precisely exude USA exceptionalism.

While from a technical picture the triple bottom EURUSD format 1.0925-1.0910 may hold some USD short appeal.

If the US continues to surge into the weekend that could be interpreted as a bullish sign

This article was written by Stephen Innes, Asia Pacific Market Strategist at AxiTrader