World Cup effect weighing on volumes
Volumes are running low confirming the World Cup effect, but the lack of any substantial data has also contributed to the downturn in volume.
Risk off sentiment continues to dog equity markets as heightened trade tension between China and the US have investors yet again bracing for the worst as a full-blown trade war were to materialise it would have negative impacts on the US economy. But with US market trading off session lows, the start of the week would be better characterised as a case of investor jitters rather than a full-blown risk-off move
Elsewhere in oil, with the OPEC meeting looming on Friday the headline procession marches on. Despite a likely veto from Iran to block the Vienna group production rises, most OPEC members are optimistic the group can agree on a production hike. The oil complex has bounced back from Friday weakness as overnight headlines are now pointing to 300,000 and 600,000 barrels a day production hike. While much less than feared and closer to my desk consensus, the figure excludes non-OPEC producer Russia, so the effective increase in supply could be 0.2-0.3 mmbpd more.T his supports our long-held view that we will likely see a compromise which should set the stage for gradual barrels added over time, which is likely to be endorsed by most. This approach makes logical sense as a fine-tuning approach will ultimately keep both end users and producer happy.
Despite bouncing slightly overnight the precious complex is again giving in to the dollar strength. Despite tentatively recouping some of Friday loses, gold remains under pressure from the prospects of a strengthening dollar. Also, Friday’s stinging 2% + sell-off, the gold complex remains extremely vulnerable to more long liquidation, from a technical perspective,
Not everyone is as bearish as me on the Euro but, it remains a complete mystery why the ECB decided to kick the rate hike can down the road for another 15 months, even more so as ECB’s Vasiliauskas (Member of the governing council) said t that he sees ‘no clouds’ for euro area in the medium term. Thus, the market will be focusing on Mario Draghi conference in Sintra for a convincingly dovish follow up before sticking the fork in the Euro
While lower remains apparent near-term path of least resistance for the euro, over the medium term however the vast interest rate differential will like narrow while the uncertainty around trade wars and the demise of the US influence on global trade as China continues to assert its position, should ultimately prove detrimental for the dollar in the long run
Asia FX continues to struggle and look to be extremely vulnerable as outflows continue to pick up momentum as investor angst over trade war, and policy divergence remains front and centre as investors remain extremely cautious about re-engaging risk.
MYR: The Ringgit tested the critical USDMYR level. And while trading a negative correlation to local risk, the moves have been less harmful perhaps reflecting that despite the political noise, the MYR remain less vulnerable to external trade shocks and a stronger USD than its regional peers.