The risk-on pipeline appears intact after markets caught a second wind from the US jobs reports. However, its been a lazy day in Asia as traders wait for the Fed to signal that they are still prepared to buy faster than the market, and the government, can provide supply. ASEAN risk, in general, was likely held back a touch by the Korean Peninsula leaflet fracas.
But as Europe walks in, risk is taking a turn and trading bid, with bonds selling off.
As the days go by and equity markets continue to rally, the likelihood of more people getting stopped into the move increases, as signs of capitulation, especially in less well-owned value and cyclical names, and the movements are starting to cause pain.
When company stocks still rise after issuing bankruptcy warnings, it reinforces the fact that investors are confident that global central banks are content to paint the ticker tape green with cash for years. Calling a top remains a fool's errand.
Sure, sequencing should be a problem because it illustrates the lag between Main Street problems, eventually becoming Wall Street's. But it is not thanks to the vast amounts of stimulus the central bank printing presses continue to pump-out
The US jobs data on Friday added fuel to a V-shaped recovery. Still, we had already been seeing signs of data surprises relative to market expectations within the economic surprise indices, which is why the markets have rotated to value stocks.
The S&P 500 is trading with massive headroom above its 200-DMA. Hence, the potential for further technical outperformance is still possible with the S&P 500 Value Index even down over 10 % YTD, which could be the bullish impulse to push the S&P 500 higher.
Technical drivers will remain significant, especially for stock market bears, as a return of the CTA bugbear is driving the markets.
G-10 FX
In G-10, after the greenback took a significant step-down last week. Signs of consolidation are setting in ahead of the FOMC and a possible June swoon in risk appetite. But with FX markets echoing risk sentiment, the stock markets will remain the guiding light.
The Pound
The market may pivot to pressure the pound lower, as US dollar position-squaring endures. Even more so as the deadline for a mutually-agreed extension to the Brexit transition period that is due to end on Dec. 31 is Jul. 1. And the chance of an extension seems exceptionally low.
Gold markets
Gold markets succumbed to fast money selling above $1700 after gold received a boost from escalating tension in the Korean Peninsula. Still, gold should remain bid on the dip, as investors anticipate the US Federal Reserve will maintain its dovish stance at its policy-setting meeting this week. Price action suggests we could trade a narrow range into the FOMC, of course, all range bets are off if the S&P 500 moves through 3,250+.
Asia FX
USD/KRW is finding support ahead of 1195, the 200-day moving average, and losing momentum as KOSPI turns negative after opening +1%. North Korea has severed communication with South Korea, saying it will now treat the South as an "enemy."
USD/CNH bounced off the overnight low after the higher-than-expected fixing with the better dollar buying ensuing. It still feels very rangy with a trade war axe to grind, and 7.05-7.09 should fit today's bill but expect CNH to strengthen against the basket.
USD/THB is heavy, driving funding lower, as the market is long cash THB crosses are coming off recent highs, which explains why USD/THB continues south. The moves lower on the SGD/THB is the best indicator of that.
USD/MYR is trading fairly neutral today, while oil prices continue to zig-zag most of the session, as traders are trying to get positions in line for this week's US oil inventory data reports.
Oil markets
Oil prices are showings signs of topping out for now after the OPEC+ agreement to extend the existing first-stage agreement for output cuts by one month. The positive momentum in oil prices driven by OPEC+ output cuts will need to be followed up by an uptick in demand to see prices move higher. While equity markets are looking ahead to a recovery in corporate profits in 2021, energy markets do not have the luxury to be as forward-looking. Oil demand remains weak in the US, and big states that drive the US economy need to open with a driving boom. But ultimately, without the return of travel between the world's three largest regions – the US, the EU, and China – demand could be slow to pick up.