A solid day in the US equities overnight that was topped off by Apple (NASDAQ:AAPL) beating sales estimates in after-hours trading provided an early morning fillip to Asia-Pacific risk sentiment. But with little follow-through in the risk fragile Asian market, it will be up to Europe to carry the momentum baton.
Yields are higher across the region; however, tracking the moves in US Treasury yields overnight.
Currencies
Yuan
But these mornings puzzling Yuan rally has bounced off the highs (6.9541) and retraced 100 pips back above 6.96. Still, equity markets are mostly positive after Hong Kong reopened this morning in a relatively orderly manner, and swaps are stable, which has added to the calm.
Thai Baht
The USD/THB continues to march higher, suggesting it's not if but rather a matter of time before traders test the critical 31 USD/THB levels. Speculators are beginning to lean hard on the possibility of a rate cut at some time this year given the expected economic hit from the drop in tourism revenues.
Aussie Yen
After testing the 74 levels AUD/JPY has turned south, and as I suggested this morning with G-10 traders duration risk threshold between 2-4 hours these days, I guess the 3-hour definite bump was timed nearly to perfection.
Risk Sentiment
ASEAN investors seem happy to see that the resilient US economy is holding up well, with yesterday's consumer confidence data the latest consensus-beating numbers. However, the ongoing slump in base metals suggests we're miles away from pricing in the recovery just yet as the BCOMIN is still languishing > -6 % year to date with the bulk of the drop directly attributable to the virus fears.
Gold
However, US TIPS risk reversal was a welcome relief to sentiment, and the substantial buying in 5-year TIPS overnight all but wilted demand for gold.
But with so much unresolved risks still on the table gold has predictably found buyers on the dip in Asia. And could regain lost ground quickly on the slightest equity market buckle.
FOMC
The FOMC is today's key event, but we shouldn't expect much new news in the policy statement. Chair Powell will be quizzed in the Q&A on the near-term path for the balance sheet, which has swelled enormously in recent months. Franky, I think his response to the Repo markets is where the balance of risk sits, and on any communication, a misstep could see gold back in demand again.
Oddly enough, I don't see any reasons for a negative outcome for USD or gold for that matter, especially in the context of the coronavirus concerns. Honestly, I can't remember the last time I went into an FOMC barbell long gold and US dollar, bizarre markets indeed.
Oil
Oil prices stabilized very much in line with risk sentiment and were further bolstered by the API report, which showed a bullish to consensus drop in US crude stocks. Also, the likely hood of a supply response from OPEC and possibly sooner than the planned March meeting should provide some semblance of a floor until oil traders receive concrete evidence that containment is working and that infection rates are slowing. So maybe the bottom is in the price.
The big elephant in the room remains China given oil price sensitivity to a plethora of mainland economic factors, jet fuel demand notwithstanding. And since we don't have a sturdy handle on those factors yes, as investors need some evidentiary data to compile, so prices could remain under the cosh even if we do see short-covering rally attempts.