US Market – Wait and See

While US markets continue to trade with a risk-seeking bias, but Monday’s earning inspired momentum faded on the back of Goldman Sachs and Citi Groups lousy earnings, as traders turned fast to book profits.
Stephen Innes

Investors put up a strong defense of the psychologically important  S&P 2900 level, and the market bounced higher into the bell. Indeed investors continue to ask their brokers what “synchronized global slowdown were you talking about??”

If a sustained upturn on global growth kicks in, there are copious amounts of room for global equity markets to push higher this despite the juicy 16% the S&P 500 has returned this year for investors that didn’t flinch despite the plenitude of recessionary cheerleading hitting the airwaves.

Oil markets

Lots of crosscurrents today including a second consecutive weekly increase in the US oil rig count which I think is having a bit of influence on traders’ positions sizing causing them to pare some risk but not necessarily altering their bullish views.

Other than an unlikely about-face in OPEC supply discipline or a surprise on Iran sanction wavier, not quite sure what can or will derail  Oil markets. But given the air of unpredictability that engulfs President Trump certainly concerns will creep that the President will knuckle down, and force prices lower by increasing Iran waiver limits.

And speaking of wild cards, and likely the primary catalyst for what driving market today that according to Russia’s Finance Minister Anton Siluanov, “Russia is prepared to go toe to toe with US shale producers to maintain their share of the oil market.” even if it means quitting OPEC.

Gold Markets

Gold is struggling to find traction after bulls shed some severe weight last week. And not surprisingly prices continued to slide as positive catalyst remain far and few. US yields remain steady; equity markets are trading on an even keel while optimism about a US-China trade deal continues to be very supportive for risk sentiment completely deflating investor appetite for safe-haven plays like gold.

And while I don’t believe a long liquidation is on the cards, however, I do suspect traders will be a much better seller on rallies over the near term.

Foreign Exchange Markets

If you are a China bull, you need to belong both EUR and AUD

Australian dollar

With the US-China trade deal on track, commodity prices well supported, if we get a positive signal from the China data to dump this week, it will be the icing on the cake for the contrarian Aussie bulls. Not to mention the fact that local traders are pricing way too much RBA easing this year given the stable jobs markets.

The Euro

Traders are beginning to see value in long Euro on several fronts. The bounce in global economic data that started this month with positive PMI’s. Better IP prints out of the EU and robust data in China especially from the export sector all of which suggest global ” green shoots” growth is well underway. If the market regains some degree of optimism about global growth the Euro can easily bridge the valuation gap and move closer to the 1.1700 level.

Malaysian Ringgit

The Ringgit caught an updraft on China TSF data while banks loans also came in much higher than expected so there could be upside revaluations to China’s GDP forecasts for 2019. I still think the China stimulus will take a while to filter through to the Malaysia economy and the Ringgit could remain vulnerable to a shift in BNM policy.

The bull in the China shop

My bullish cross-asset view is ultimately dependant on China data rebounding and towing Europe along for the ride.

After last weeks China data bounce, based on yesterday’s price action it suggests that cross-asset traders are concerned about running their positions too far ahead of economic realities, preferring to err on the side of caution ahead of arguably the most critical set of financial data to hit the global markets this year.

Well, unless we get an incredible US-China trade deal announcement over the next 48 hours. I think traders will take a very neutral track as on Wednesday we see the crucial monthly China data dump so I would expect markets to be slightly sticky between now and then.

Granted I should be paying more attention to the earning season, but frankly, they are not that important since it’s the stream of all future earning that is critical. And therefore global growth prospects, are far more critically significant hence the reason why I’m singularly focused on Chinas data dump for no other reason than take measure if the latest PMI reading was an absolute bullish signal or not.

But unless I’m misreading the strong Chinese credit influence that is not only boosting commodity prices but also helping global risk sentiment recover, it would suggest this credit impulse should also be a positive influence on this week China data.

On a positive confirmation, we should see traders run wild- like the proverbial bulls in the china shop.

This article was written by Stephen Innes, Head of Trading and Market Strategy at SPI Asset Management

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