Markets remain shrouded in a thick blanket of risk.
The USD outperformed on Monday on the back of Italy and Brexit risk while the mere utterance of a protracted equity correction remains a highly sensitive topic that investors fear could morph from a wall of worry into a towering wall of pain.
Risk aversion continues to permeate every pocket of the markets whether triggered by President Trumps latest tweets on immigration or the blustery headwinds from Riyadh to Rome; markets remain shrouded in a thick blanket of risk.
For the most part, US equities struggled overnight and were unable to hold on to Shanghai Composite Index intervention induced gains as US banks toppled the most while energy producers struggled as crude prices hit a five-week low.
But looking ahead today, it seems like a quieter docket than usual, but trader remain on headline watch ( as usual)
Oil Markets
Oil prices are pointing lower again with the Saudi credit default swaps ballooning as the market becomes incredibly uncertain if there will be a shift in power when the Crown price is directly linked the Khashoggi murder.
The market turned offered again after Saudi Energy Minister Khalid Al-Falah, likely in an attempt to diffuse geopolitical tensions, said production would soon increase from 10.7 million barrels per day to 11.0 as part of the ongoing effort to offset the impact of US sanctions on Iranian crude oil exports. Of course, digging into spare capacity does raise future concerns in the face of another significant supply disruption.
It is no sure-fire proposition that the kingdom’s reserves will be enough to offset the enormous loss of production from Iran and Venezuela while leaving market ever so delicately balanced and prone to any supply disruption as other the Middle East concerns, North and West Africa remain hotspots in months ahead. And with traders all too aware that we are little more than one supply disruption away from upsetting the supply and demand apple cart and shooting oil prices higher yet again.
While the Khashoggi saga appears to be far from over the thoughts that US-Saudi tensions could lead to a supply disruption are but a distant memory.
Nearby November WTI futures expire in NY, so position squaring amid thinner volumes were the primary focus there today, but the contracts did coat trail prompt Brent lower none the less.
Gold Markets
Gold came under pressure overnight as freshly minted long equity hedge positions were squeezed by a stronger USD and despite Brexit and Italy concerns global equity markets did get some traction from China markets after verbal intervention suggests officials are prepared to stimulate the economy, including deeper cuts in personal tax rates. And while it’s easy to be cynical about the longer-term impact of this type of Chinese intervention it nearly always works over the short term, so gold prices conceded some gains.
Currency Markets
The British Pound
Overnight headlines brought a lot of PM May pushbacks. Acrimony within her party is, of course, a massive barrier that might ultimately result in a leadership battle, The Telegraph reported that a Eurosceptic amendment was gaining traction in Parliament ahead of Wednesday’s discussion; but so far that bluster seems to have faded. Sterling bids were in short supply overnight after GBPUSD breached the 55d MA (1.2990). But for the time being there appears to be some support structure lurking around 1.2950 that are keeping the Pound bears at bay.
The Euro
Of course, the EUR has its worries with Italian budgets, but with chatter, the ECB may push back its 2019 outlooks to the December meeting, it does suggest the current European political malaise might weighing on policy sentiment
The Australian Dollar
China risk rallies but the Aussie dollar doesn’t. Look no further than the mulishly sticky USDCNH that remains tethered to the 6.94 and the Australian government’s fragility taking centre stage. Mind you I’m trying to figure out when the Oz government hasn’t been in a fragile state as this seems to be the norm down under.
The Malaysian Ringgit
Uncertain global risks slippery oil prices and pre-budget malaise has traders for the most part sidelined. The next focus is no tomorrows CPI but given the tepid inflation readings this year, its unlikely to shift the dial from the markets more dovish read on future BNM policy.
