Markets
Risk has continued to veer averse today as pre-earnings jitters amidst a torrent of turbulent crosscurrents have investors adopting a more defensive approach even after the Fed indicated patience on further rate hikes. Frankly, the signals from Friday were suggesting that we are nearing peak short term optimism as even with the bump in sentiment from the Fed. Treasury markets continue to signal impending doom and gloom on the recession front making it a less than ideal situation for investors to stick with any long term positive directional view.
Besides, China weaker than expected 2018 trade data has seen China equity market dive lower as General Administration of Customs said on Monday. Imports increased 15.8% last year (expected 15.9% YoY), resulting in a trade surplus of USD351.76bn, the lowest since 2013.
And then sentiment went deeper into the tank on the release of China December Trade data which missed the mark badly
China, China, China and more China
China has been the primary focus today.
The markets were heading into today China’s trade data, expecting leading indicators of regional trade will be weak, and export orders point at a continued weakening sentiment. Which indeed proved to be the case and the weaker than expected trade figures are immediately weighing on commodity and equity markets and associated currency baskets. Sorry no frontloading in this data to hang one’s hat on!
Fairly damaging data and should reverse this morning Fed-fueled rally on the CNH and other Asia EMFX’s rally.
USD/CNY fixed at 6.7560 today, -349 pips from the last fixing and +78 pips from the previous closing at 6.7482 on 16:30 Beijing time. This is in line with markets expectation at 6.7557. Indicating little push back from mainland policymakers so far, and Traders were quick to unwind Fridays USD/CNH pullback which was driven on intervention chatter.
But participation remains light in currency markets with Tokyo on holiday’s as traders are cautious of diminished liquidity and are not looking to push the envelope too much especially with last weeks flash crash fresh in mind which also occurred during Tokyo holiday thinned session. Believe it or not, It was the first thing I discussed with my trader colleague from Bank of Nova Scotia this morning who was doing a media spot the same time I was, so its a real concern these days.
Oil Markets
Oil prices are getting weighted down by the prospects of weaker economic growth in China amidst a definite global growth slowdown but remain supported by OPEC production cuts and hopes of US-China trade detente.
The December trade figures are hammering commodity markets lower as this data drives home just how negative of an impact trade war is having on the Chinese and perhaps global economy.
Gold Markets
A pause in the dollar’s strength real rates has attracted a lot of attention to gold recently. But More broadly, growing concerns about growth, lingering weakness in equities and political matters on both sides of the pond all suggest Gold is due for a convincing break out higher on the weeks ahead.
Discussion’s around Singapore Marina Bay banking towers.
Lots of debate today on a possible Shanghai Accord redux. So, while the markets are focusing on the latest shift from the Fed, the real risk on catalyst could be China dipping into their massive monetary policy war chest to right the national economic ship. If a coordinated response for G-7 central banks is in the works, something we have alluded as a possibility during the December equity market meltdown, local equity markets could be poised to explode higher as they did during the highly celebrated Shanghai Accord of January 2016.