After becoming accustomed to trading regime of 'bad news is good news,' investors are still struggling with the good news driving the bad direction.
That shouldn’t be. On the macro level there is still no sign of a turnaround for eurozone activity data or China for that matter. Suggesting downside global growth momentum remains the path of least resistance and if this doesn’t trigger a deluge of central bank easing, not sure what will. In that light, we think it is just a matter of time before the People's Bank of China (Pboc) kicks policy into a higher gear.
While the Fed should cement a 25 bp cut in July, but with too much idle time on their hands amidst limited news flow, traders are now mulling over the possibilities the Fed won’t cut at all.
Asia Markets
Besides the laundry list of concerns around a less dovish Fed, Japan and South Korea trade friction, Samsung (KS:005930) profits report, investors are now dealing with more financial institution woes as China regulators raise concerns about Trust Company Real Estate financing.
Unfortunately, this type of communication doesn’t fit into the bad news is a good thing category. As we have seen in the past in China banking sector, where there's smoke there's usually fire.
Gold Market
Gold is struggling for traction as the U.S.D remains steady, holding onto the bulk of Friday’s rally. This is undermined gold today.
Also, the U.S. consumer inflation outlook rose (slightly) for the first time in three months, and this too reduces the pressure on the Fed to cut rates sharply to support economic growth.
The combination of these events has deflated prices this morning as gold traders move into a defensive posture ahead of the FOMC minutes and Chair Powell's testimony before Congress.
Oil Markets
Oil markets are stuck in stasis as traders are not sure what to do with two competing narratives struggling for headline space. Iran tensions vs global economic despair as very few trades are going through so far today.
Currency Markets
Chinese Yuan
No shift on Pboc policy after the yuan strengthened overnight. The currency is falling prey to broad-based USD strength and weaker domestic equity sentiment. But trading conditions remain precariously thin as far as liquidity is concerned so any nugget of news can trigger an outsized move.
Euro
The USD continues to hold onto the bulk of its post NFP gains, but EURUSD looks particularly vulnerable.
While U.S. data surprises positively, European data continues to fail, The eurozone Sentix Investor Confidence measure dropped to -5.8 from -3.3, confounding consensus expectations for an improvement to 0.1. while German Industrial Production was down 3.7% YoY, adding to the downbeat tone.
The Ringgit
Markets remain on central bank watch but with exports still growing and FDI inflows accelerating, Malaysia’s economy is one of the most resilient in Asia. All of which overwhelmingly suggests the BNM will remain on hold after their prudent insurance policy cut in May.
The USD/MYR continues to hold its own in the face of a strong USD.