Risk sentiment remains cautiously on as the signing of Phase One of the US and China trade deal looms. That, with this morning news that the US Treasury no longer views China as a currency manipulator, resulted in USD/JPY popping above 110.00 when Asian currencies got rocking.
We're starting to see a bit of air come out of the trade deal party ballons right now- as some profit-taking is probably setting in.
Momentum is one is the primary factor in play, and we're seeing a bit of shift on that call as Europe takes the lead.
Large-cap NASDAQ names led a push in the US on Monday in robust, but not overwhelming volumes China import data was solid but is being viewed as backward-looking and not a significant driver and the RMB excitement is dissipating after a bit of an overshoot, in my view ( see below)
Gold
Gold is trading in a $1536.00-$1549.00 range so far. If we factor in a possible closing of this year’s gap, that will put is in around $ 1520, but the stack will be hugely bid before that level one would think. Unless Trump shocks by pulling a bigger tariff reduction or even hinting at one out of the hat, strategic long term gold buyers should remain bid on the dip. The current level of “P1 tariff rollback, which amounts to a net reduction of 1.5 % of overall US tariffs, is unlikely to provide enough US domestic economic punch to shift the Fed hawkish. But the one “buyer beware” for gold bulls would be in the event central banks in general turn less dovish amid risk-on sentiment. Until that unlikely pivot, gold should head higher over time.
Surely Trump isn’t going to pull a bigger tariff rabbit out the hat? Crazier things have happened during his presidency, though.
As for macro, while the economic data is suggesting things haven’t got worse. Still, at the same time, it doesn’t point to a significant rerating of the economy — Friday’s NFP print the latest example of any bullish risk momentum getting snuffed out. So far this year the tremendous global growth trade of 2020 has been a bust, and you don’t need to look much further for evidence than the resilient USD and sagging oil prices.
Oil
Oil prices tried to nudge higher but struggled even as investors focused on the signing of a preliminary trade deal between the United States and China, the world’s top oil consumers, and on expectations of a drawdown in US crude oil inventories. However, price gains were capped by the omnipresent non-OPEC supply expectations.
Based on price action it seems that traders believe the P1 is mostly in the price. And given that it could be a skinny deal at best, the thought is that P1my not have an immediate enough impact on the data to shift the prompt markets sufficiently enough from holding a bearish near-term narrative.
So, it appears the markets near term bearish outlook on oil was merely postponed but not canceled by the US-Iran conflict.
Yuan
USD/CNH opened lower after China was removed from the US Treasury’s semi-annual currency report, released yesterday. The pair then hit a new low of 6.8654 after stronger China trade data. Tight funding also added to the USD selling pressure. The move has run further than most bullish expectations anticipated based on the current level or anticipated tariff rollback, suggesting markets could find current levels temporary support and will likely consolidate in the near term. But equity inflows have caught more than a few traders by surprise. However, today Inflows into the onshore stock market seem to have eased. If this continues, it may take some pressure off of funding, and USD/CNH could gravitate 6.9 level. With funding a bit tight, and possible CNH overshoot be on the lookout for potential PBoC injections ahead of the Chinese New Year holidays.
Thai Baht
There was nothing significant in the Bank of Thailand announcement earlier today. The market was looking for potential new policies after the news on the BoT, encouraging SMEs to import given the baht’s strength, so USD/THB was quickly bid towards 30.32. However, the disappointing announcement led to the move being quickly faded down towards 30.25, where it held