US equity markets, at least for today, put tech sector regulation and the fear of an escalating trade war behind them. Investors were in buy-the-dip mode, but unwound Monday’s meltdown when reports suggested President Trump is not formally looking at options to address his concerns with the US’s major e-retailer. While trade wars concerns have not improved by any stretch of the imagination, fumes of fancy have reversed some of Monday’s carnage.
Indeed, equity markets are providing the broader sentiment gauge as USDJPY topped the charts at 106.65, 10-year yields rose to 2.79 %, and gold briefly slipped below 1330.00 as risk-off hedges unwound. But trading should remain quite volatile as the prospect of a trade war between the U.S. and China continues to cast a dark shadow over global capital markets.
When it comes to trading these days, it feels like I’m playing a never-ending game of ring-a-bottle, putting way to much cash at work to win a big fluffy stuffed animal of equal or less value. There is no escaping the hamster wheel syndrome in a market dictated by headline risk.
Oil Markets
Oil prices have recovered as equity markets veered higher when focus shifted back to inventory concerns after the American Petroleum Institute (API) reported a surprise draw of 3.28 million barrels of US crude. While a highly unpredictable and volatile reading, it continues to provide a go-to litmus test for market sentiment.
But oil markets remain in a tangled web of headline risk while enormous speculative positioning and the fear of a crowded trade is keeping top side moves in check.
Gold Markets
Gold prices fell overnight as US stock markets rebounded after fears of a global equity rout eased as concerns of a more profound global equity sell-off decreased, and the US dollar strengthened. But with volatility and trade tension simmering, gold will remain supported on dips. Until a definitive headline materialises that their’s positive progress on the trade front, the enormous tail risk from the US Administration Section 301 investigations has the potential to send the market into an irreversible tailspin and will keep haven trades in play.
Currency Markets
The Japanese Yen
Keep calm and don’t lose the plot. JPY was trading less sensitive to the SPX given that de-FAANG’ing drove much of the move, so traders are viewing the overnight reversal as an opportunity to increase JPY longs.Trade war is still in play and the potential for a more raucous US-China affair remain, especially on the escalation around section 301, suggesting traders are not going to give up short USDJPY positions easily. Could be a case of “buy on cannons sell on trumpets. ” Short dollar-yen trade has been stirred but remains unshaken
The Euro
The euro was weighted down by the crosses. Unfortunately, the EURUSD, for the time being, remains an incredibly dull trade.
The Malaysian Ringgit
Risk sentiment is improving, and the ringgit will benefit this morning as the local unit is trading with a robust correlation to risk which if for the most part being framed by escalating trade rhetoric. While I expect US-China trade tensions to weigh on regional bourses and the looming election to dampen inflows, the MYR remains very isolated and will continue to trade rangebound ahead of this week’s key US NFP.