Decision Time
Month-end flow combined with Midterm elections uncertainty was more than enough to keep investors busy, and there were enough head fakes from the Trump camp regarding progress on a trade deal with China to keep political uncertainly boiling. While the equity market and risk sentiment stabilise around current levels and some of the worst-case scenarios around trade war hedges unwind, overall risk sentiment has failed to pick up.
Investors are far too wary of an empty promise, but ultimately, they will need to decide how much of President Trump’s olive branch to China was a ploy to boost equity markets ahead of the US mid-term elections on Tuesday and how much of it is a bona fide attempt to reach an agreement.
Speaking of unwinding of worst-case scenario bets, USDCNH posted a bearish outside week after fast money ran for the exit as a push above seven would be less likely ahead of November G-20. If US-China negotiation channels remain open, an escalation on the US tariff front remains less likely so China will be more incentivised to keep Yuan weakness in check. None the less, the rally in the RMB complex also helped other Asian currencies which had their best week since late January.
Oil markets
Regardless of whether the markets are getting it right or not on the waivers debate, the temporary waivers on US sanctions against Iranian crude oil exports for eight nations provide at least some short-term cushion against the impact of sanctions due to take effect today.
While Iranian productions and exports declines will likely accelerate in the months ahead as massive importers like China and India become 100 % compliant on the sanction front. Traders are still dealing with increased flowage from the US, Russia and even OPEC.
Markets are looking for a base perhaps signalling a period of consolidation, but in the absence of a supply shocker, price retracements may be elusive and short-lived as the market deal with what appears to be a near-term oil surplus while factoring in a slowing global economy.
Gold Markets
Wedding season and demand ahead of Diwali are keeping jewellers busy. However, this belies the fact that gold demand for the first nine months of 2018 was the weakest since 2009, this despite central bank adding to gold reserves throughout August and September. But keep in mind much of Asian demand was sidelined due to the higher cost of gold in real currency terms as Asian currencies like the Rupee and Yuan have weakened considerably this year.
But Friday’s US payroll data where average hourly wages increased above 3 % for the first time since 2009 triggering a 5 $ drop on gold prices as this more robust inflation print keep the Federal Reserve Boards interest rates rise trajectory in check. Still with enough political uncertainly brewing, Gold should remain bid on dips as if the GOP loses significant support causing the USD to wobble, gold should be a hot commodity to own.
Asian Markets
Local Investor sentiment will remain nervous after local stock markets rallied hard on Friday, only to see fund managers selling US stocks on the numerous Trump headline twists and turns.
The Malaysian Ringgit
Although the government forecast a deficit of 3.7% for its 2018 budget, up from earlier forecasts of 2.8%. The Ringgit gained on Friday due to a weaker Yuan, but investors were also cheering when the Government announced it was doubling its Dividend from Petronas.
Main focus today
PMI numbers will be released for Singapore, Hong Kong and the Philippines. The market’s attention will be on the Caixin China PMI numbers where a negative number will raise more hopes for stimulus.
Malaysia will report trade figures while Indonesian GDP will also be published.
Chinese President Xi will be addressing the first international import forum in Shanghai.
Earnings in the region are expected from Softbank, Westpac, DBS and State Bank of India.
