The tale of the tape doesn’t lie in this highly sensitive headline-driven markets. US stocks spent the better part of the New York session playing headline catch up as trade tensions between the US and China apparently eased following last weeks dust-up. But there is no rest for the weary as the non-stop equity market surge and purge continues on the exhaustive list of negative narratives US-China trade relations remain uncertain, geopolitical risk is jumping higher, and the Muller investigation continues to wear on sentiment as investors continue to sell the news and worry about the details later.
Currency markets were thrown a curve ball yesterday afternoon when a Bloomberg headline suggested that China is studying CNY devaluation as a potential tool in trade tensions. Investors need to be careful reading too much into all this nonsense as it’s incredibly unlikely given China ambition to open up domestic markets, as any move to devalue the currency will bring back memories of 2015 and could cause irreparable damage to the yuan as far as internationalisation is concerned.
Oil
Oil prices rose along with broader markets as trade war tension eased. But WTI is moving higher again as the Geopolitical risk premiums are surging. Some traders are pointing to the latest escalation in Syria, But I suspect this move is all about positioning ahead of a high probability the US will impose sanctions on Iran; Yesterday was new national security adviser John Bolton’s official first day in office and with his hawkish view of the Iranian conflict, sanctions are more likely than not.,
Gold
Its been a strong start to the week for the precious metal despite the CoT reports suggesting that investors are paring back bullish bets on gold. But with geopolitical risk in the middle east bubbling and the never-ending trade war headline, risks gold bid has remained exceptionally fir firm as the possibility of US military intervention in Syria has increased dramatically after an alleged chemical-weapons attack. There a very hawkish Whitehouse and with all option on the table, a US military strike cannot be ruled out.
The Malaysian Ringgit
With all the RMB devaluation rhetoric local investors remain very cautious despite such interventions very unlikely. But perhaps the coincidental timing of today’s scheduled keynote speech by Chinese President Xi at the Boao Forum in Hainan is causing the jitters.
The ringgit is struggling to make headway this week as trade war tension continue to boil under the surface and inflows have dropped to a trickle. Risk sentiment remains extraordinarily fragile, and investors are playing their cards very close to their chest. It seems that even with trade war tension easing $Asia remains a tough sell.