A Canadian court has granted bail to the CFO of Huawei which should temper China’s outcry ( more on this below)
Markets
Risk sentiment tentatively stabilized overnight but by no means is the market out of the woods after another whippy trading session on Wall Street. While markets have been overwhelmed by risk-off sentiment in recent trading sessions, traders are in a much more positive mode today on the back of constructive US-China headlines. Market sentiment was then further supported by positive news on car tariffs. Equities are rallying, led by gains in tech shares and automakers. According to unnamed sources, a proposal to reduce tariffs on cars made in the US to 15% from the current 40% has been submitted to China’s Cabinet to be reviewed in the coming days.
Trump
Also, reports that a US government shut down has been averted when funding expires after December 21 are being viewed in a positive light. This news comes after a Presidential tirade in front of the White House press corps. If Trump’s demands for border funding aren’t met, he is threatening that “I will be the one to shut it down,” Trump said
Brexit
And to prove there is no rest for the weary GBP trader, and Prime Minster May for that fact, UK media is reporting that top government officials are sure Theresa May will be subject to an internal leadership challenge imminently as the 48 letters have been reached to trigger a vote. The pound is trading below 1.25 as this Brexit tennis match is making a Nadal-Federer Wimbledon final look like a walk in the park.
China
Adding to a more friendly Asia market open, a Canadian court has granted bail to the CFO of Huawei which should temper China’s outcry.
However, markets were taking note that the Huawei (SZ:002502) CFO arrest hasn’t halted US-China trade talks. So this headline should not be interpreted as an absolute game changer on the trade war front.
However, the confluence of small positives in US-China tensions is being viewed through less skeptical lenses. While the headlines suggest that some of the G-20 promises could still be delivered, investors should not get overly complacent. China's outreach will likely not deter the US administration from calling out Beijing over China's theft of intellectual property rights and for compromising sensitive government and corporate computers. Which suggests traders will continue to be better sellers of risk as will likely remain one step forward and two steps back on the trade front.
India
Following the shocking departure of Urjit Patel (amid rumors of a clash with the government over autonomy), India has named Shaktikanta Das as the new RBI Governor, for a term of three years. A controversial figure indeed as he was a crucial figure in the 2016 banknote demonetization.
But given Das’s close connection with India’s government, the market is viewing this as a patronage appointment. This will do little to shore up market confidence in the RBI as an autonomous central bank. This eyebrow-raising announcement has wiped out overnight gains on the rupee which benefited from a relief rally after a convincing state election victory by the Congress party.
The USDINR market remains fragile, even moreso with oil prices edging higher overnight. Indeed, markets still have an abundance of risk to navigate this week.
Oil Market
In what should be music to OPEC ears, The American Petroleum Institute (API) reported a substantial crude oil inventory drawdown of 10.18 million barrels for the week ending December 7, and well beyond analysts’ expectations which should provide a decent bid to WTI in early Asia markets.
During the NY session, WTI pushed higher towards $52.50, although there doesn’t seem to be a great deal of enthusiasm behind the push higher after risk sentiment stabilized alongside the recovery in global equity markets on hopes of trade progress between the US and China. Also, there was revived optimism that the OPEC cuts could rebalance markets when traders started digesting how OPEC supply cuts would be implemented after Saudi Arabia said it planning to slash output to around 10.2 million barrels down 900,000 per day from November while Russia confirmed their commitment to at least 50,000 barrels per day reduction. All the while Libya’s largest oil field remains shuttered.
While the Russia number is hardly eye-popping, on that front I guess something is better than nothing.
While the markets are in the process of establishing a near-term floor, upside potential doesn’t look attractive in this overtly risk-off environment.
Gold Market
The stronger USD against EU counterparts and a boost in sentiment for more positive USD-China trade headlines say gold to trade down to 1241 overnight on profit taken.
Despite risk sentient extremely shaky, the USD continues to show itself as the primary driver in oil market sentiment. Still, there’s an abundance of risks to navigate this week suggesting gold will remain bid towards the near term 1240 resistance levels.
Currency Markets
European political risk dominated FX markets Tuesday as bothEUR And GBP underperformed miserably. Rumors are surfacing that UK PM May’s opposition has enough letters to call a no-confidence vote against her government formally.
EUR: The euro is trading lower after French President Macron's peace offering to the yellow vest protesters in the form of EUR 100 per month minimum wage bump while abolishing a tax on pensions. The EU fixed income market reacted quite negatively as this will have consequences on France's budget.
GBP: The pound...well we don’t need to waste any more ink on that one.
AUD: The Australian dollar received a boost from the China headlines, but the Sydney housing market remains of some concern after prices dropped the most in 30 years, having peaked in 2017. This brewing housing market crisis is raising fears that the Australian economy is little more than an asset bubble on top of an iron ore mine.
CNH: Onshore and offshore yuan trading very sensitive to Huawei headline risk, creating erratic and patchy trading conditions.
MYR. Outflows and de-risking continue to be the name of the game for the ringgit.