U.S. Markets
U.S. equity markets put in a record-setting one-way holiday-shortened session yesterday, supported by the backdrop of a chorus of central banks shifting to a more accommodating monetary policy stance. However, the fall in yields, especially in the context of the breadth of negative-yielding alternatives, has increased investor appetite for high dividend-yielding equity risk hoping that this next wave of central bank monetary infusion will provide a foundation to ensure the global cyclical bottom is set while offering as welcoming climate to extend this bullish trading cycle in equity markets.
While the appointment of Doves to the Fed board is buttressing that view, things are looking positive in the Asia session.
The Lagarde Rally?
IMF MD Christine Lagarde's nomination as next president of the ECB caused bonds to rally as under the Lagarde guidance the IMF has become less of a think tank and has instead pushed the envelope for more innovative economic policy measures, which suggests a continuation of the well-founded expectation that she will pursue President Mario Draghi's creatively dovish approach.
However, in a time when cracks are appearing in the Eurozone substructure, the role of the central banker in Europe is taking on a much more political position, and while it's expected she will stay true to the Draghi mantra, her political expertise is what will eventually shine through.
Oil Markets
Despite an OPEC meeting that arguably over-delivered relative to expectations and another large U.S. crude inventory draw, oil prices continue to struggle to fill this week's cavernous gap lower as the recent wave of macro data, especially the global PMI barometers remains a significant cause for concern as the current economic realities are very hard to ignore.
However, oil prices rebounded into the July 4th U.S. holiday on a short-covering rally, while receiving a fillip from a significant drop in U.S. gasoline supplies which has helped crude prices glaze over this week's considerable downturn in prices.
All the while commodity prices are getting a boost from an anticipated extension of the global central bank monetary policy gravy train. But supporting the bullish medium-term oil view, we must remind ourselves that OPEC and key non-OPEC producers will continue to adopt a whatever it takes attitude to support prices the agreement on a charter of perpetual cooperation between OPEC and key non-OPEC producers should help that view.
Gold Markets
This latest rally in gold is a surprise, but the yellow metal is sticking to the most recent tendency to remain firmly bid on dips. Flows have turned better offered overnight with the S&P 500 eyeing 3000 and the USD remaining firm, but it’s questionable what if any impact the USD is having in this recent gold ramp.
One-month options jumped 2 and 3 vols yesterday suggesting the move was unexpected but also confirms our view this rally is options-driven as cash market has been trading thinly ahead of the July 4 U.S. holiday and the U.S. payrolls on Friday that looms ominously.
However, with the ADP payrolls report missing analysts expectations, it continues to support the broader U.S. economic slowdown narrative and even with the U.S. and China back to the trade war negotiating table a Fed cut remains a lock and should remain supportive for gold markets.
G-10
As the dollar nudges its way into a July 4th holiday session, the dollar has weakened off marginally as focus shifts to the Friday’s payroll.