Many Moving Parts
The various evolving narratives and lots of moving parts contributed some vibrant price action overnight. While international trade relations and the FOMC continue to lurk, markets took note of positive news regarding Brexit, yet another possible ECB policy shift and a tech-driven decline in the US and global equities markets.
Primary US stock index joined Global markets in the red Monday after Facebook share prices tanked over improper data use weighed on the tech sector. Cambridge Analytica was able to tap the profiles of more than 50 million Facebook users without their permission which could be an isolated issue or the symptom of broader matters at Facebook. This security breach could end up being a significant turning point for the social media and network portal.
Asia markets were already plumbing the depths on the prospects of Apple ‘s continued move to vertically integrate by both producing and manufacturing the new MicroLED technology in-house.
All in all global equities are mired in their worst run since November
While the overwhelming focus remains on the FOMC, G-10 traders applauded the constructive Brexit news overnight and with most investors underweighted GBP assets; there was a scramble for topside exposure with the Pound punching well above its recent weight. As for the dollar fortunes, it all comes down to whether or not a steeper shift in dot plots is in the cards as the packed in March interest rate hike in itself is not sufficient enough to extend the USD’s recent appeal.
The Euro was trading at dovish extremes entering the weekend but has bounced back with a vengeance after ” ECB sources” suggest the doves on the ECB board acknowledge QE should end this year and are okay with the market pricing in a 2019 rate hike. The single currency rallied 1.2260 towards 1.2360 in quick order on Monday as short-term Traders were caught out of line triggering some near-term stops.
The Japanese Yen
The USDJPY continues to trade heavy as this pair should be the most prominent beneficiary of the re-emergence of the weaker USD narrative even more so in this hyper risk-averse market. Abe political noise and equity market declines continue to dent sentiment.
The Malaysian Ringgit
EM and commodity currency continue to underperform in this risk-averse environment. But with the markets starting to price in a close call on Fed to shift to four rate hikes in 2018, the market has been paring back short USD MYR and $ASIA positions, so the Ringgit continues to struggle in this environment
The prospect of a faster pace of Fed policy normalisation and a risk-averse market provides a toxic backdrop for near-term Ringgit sentiment.
At one point overnight OIl prices came off very aggressively as Wall street caved. But the downside susceptibility is also a cause and effect of the increase in US shale drilling where weaker speculative longs remain quite fragile to global risk sentiment
However, tensions between Saudi Arabia and Iran, as well as concerns over Venezuelan crude production, continued to underpin prices and the markets have recovered soundly. Iran nuclear tensions are not leaving the picture anytime soon, and the possible reimposition of US Oil sanctions should the keep Oil bulls charging near term.
After knocking on crucial support level doors overnight, Gold prices bounced higher amid equity weakness and heightened geopolitical tensions between Saudi Arabia and Iran.
While gold investors remain incredibly nervous at the prospect of a shift in the Fed dot plots fearing of possible FOMC induced knee-jerk lower. However, since risk aversion is not expected to decrease anytime soon and with President Tump beating the trade war drums, demand for haven assets should remain firm over the medium term, even more so with core Gold investors.
While gold prices have bounced admirably over the past few US rate hikes, but those were interpreted as a dovish rate increase. This time around everyone is more apt to defend against a hawkish narrative.