Overnight U.S. market recap
Following the US ADP employment report miss, U.S. Treasury yields fell; the Yen soared, The S&P 500 suffered its first back-to-back drops of more than 1% this year, Crude futures tanked to their weakest levels in a month while gold prices rallied back to the critical $1500 level.
Asia Warp
Global growth worries are intensifying, and stocks are selling off hard on the back of that.
EUR/USD is grinding higher with the negative risk sentiment, but volumes haven't been that thick in Asia respecting that the European services PMI releases today.
While not entering contraction levels, the downward revisions to the final service PMIs in France and Germany aren't going to do much to improve market sentiment. The last French number was revised lower to 51.1 in September from 51.6 in August, while for Germany it was cut to 51.4 from 52.5 and the Eurozone September services PMI dropping 51.6, after 52.0 in August.
G-10 Currency
Economic storm clouds building
Euro
Despite the lousy EU data and the revision lower on the latest round of EU services PMI’s, the EUR/USD remains supported by negative risk sentiment.
However, trader appears to prefer playing the current short-term Euro range goalposts 1.0975-1.1075 as its a bit early to call for full bore dollar weakness.
Even although the Fed easing is a primary condition for dollar weakness, a 25-basis cut in October is unlikely to lessen the USD yield advantage significantly.
So, until there's evidence of the EU economic data improving, traders may still prefer selling EUR/USD on moves to 1.1075-1.1100, this is even despite the fact they may be positioned long EURUSD on a short-term risk strategy.
Yen
The market remains happy to sell USD/JPY on rallies given the faltering equity markets, but 107 continues to hold firm as the GPIF news is still too fresh in trader minds which arguably skews weaker Yen. The market has been selling USD/JPY all week but traders are probably content buying on dips ahead of the US employment report to improve their average on short position trade.
Gold markets
There was more positive momentum for gold after another round of weak data out of both Europe and the US.
However, this is a move that was kicked off by risk markets flashing red lights after the worse-than-expected US ISM manufacturing data, and while keeping in mind that the US employment report data will likely provide a significant clue for Gold and the US dollar next direction, profit-taking on bounce above $1500 so far appears to be the flavour of the day.
However, with an active resistance channel forming between $1500-1505 if weaker economic data, especially of the more vulnerable US variety provides a significant impulse to push through this resistance the l this spectacular gold market recovery could easily extend to $1520+ in a heartbeat.
Oil markets
The above-consensus US inventory build reported by the EIA Wednesday was a negative catalyst for oil, particularly after the surprise draw published by the API on Tuesday But when combined with a constant string of poorly received global economic data coming fast on the heels of ISM's PMI number hitting a 10-year low. Concerns about global oil demand are rising, but next week's US-China remains the big wild card and may provide a bit of a floor under the current oil price sell-off.
ASEAN markets
Traders have been booking some profit in long USDAsia positions with the USD trading broadly weaker vs G-10 as the US economy is showing signs of faltering. However, nascent signs of a more fragile US economy are no cause for celebration for local economies which have massive export exposure into the US markets.
Malaysia
While trading a bit better today in the higher 4.18's as the USD is trading broadly weaker across the board, but the Ringgit remains glued to 4.19 level as investors are preoccupied with domestic events ahead.
A GST proposal by a domestic think tank is garnering lots of press as Dr M vs Anwar succession talk move in motion in the background
However, with the 2020 Budget getting delivered on Oct 11, this is now being viewed as the next significant catalyst which is likely keeping foreign investors cautious on local bonds, equities and currency
Singapore
More doom and gloom for Singapore but I think the market is now taking this in stride yet another consequence of trade war. The IHS Markit Singapore PMI fell to 48.3 in September 2019 from 48.7 in August, signalling the sharpest rate of contraction in more than seven years, amid global economic uncertainty and sluggish demand. The question for investors now is how far the data is going to slide
Japan
Following the weaker sentiment indicated in the September Tankan report Tuesday, today September services PMI also came in weaker at 52.8, after 53.3 in August. On the consumption side, a weaker yuan has also contributed to deflated Chinese tourist spending in Japan.
Yuan
Nikkei Asian Review highlighted that a weaker yuan had deflated Chinese tourist spending in Japan. This report will not go unnoticed by mainland regulators as the Yuan weakness is always a most unwelcome consequence of trade war for mainland consumers.
Indonesia
USD/IDR remains rangebound, trading just under the 14200 resistance. Worries of Indonesian student protest a new law is keeping the pair supported but is not enough to move it higher.