China risk
Shanghai index is showing some moxie in early trade as perhaps investors continue to expect the Pboc and mainland regulators to provide a more convincing backstop given that they have only tapped into a tiny part of their monetary and fiscal war chest. Of course, we shouldn’t read to much into what is probably little more than a short covering rally as local trader remain much better sellers of risk.
China-US trade negotiation hopes are fading, with both sides now looking set to dig in for the long haul. Asian investors should anchor themselves to the nearest gold bar and hold on until these blustery market conditions abate.
USDCNY fixed at 6.9357 today, +19 pips from last fixing and -17 pips from the previous closing at 6.9374 on 16:30 Beijing time. A touch higher than market expectations, but fixing has been unable to rouse CNH bears that are suffering a severe case of fatigue. But the market remains firmly on buy the dip mode
But the elusive silver lining is hard to come by given the confluence of negative global drivers, as sell on rally continues to permeate every pocket of global equity markets
Oil update
Oil bulls are not letting go of a possible Saudi retaliation after oil prices have caught an early bid in Asia as President Trump vows ‘some retribution’ for Jamal Khashoggi’s death. Suggesting to the degree that escalating middle east geopolitical risk is playing a part in the oil price equation.
Indeed, with middle east geopolitical embers glowing, there could be an impact on oil supplies if neighbouring sparring partners start to compete for the regional influence which could ignite the always fragile political balance in the middle east.
Oil markets remain extremely noisy in the run-up to the US Iran sanctions day of reckoning.
Ultimately, however, given that Saudi Arabia is looking to diffuse political tension, the recent rhetoric from Saudi Energy Minister Khalid Al-Falih does suggest the Kingdom may be willing to oversupply markets short-term needs not just adding barrels to meet Iran and Venezuela shortfall, and supporting the markets shift to a bearish oil market view.
