US Markets
It seems we can rely on the US markets to bail out souring Global risk sentiment again and again. But the question should be, how long can we expect this to continue.
Almost like clockwork, The Dow Jones Industrial Average hit a record high on Tuesday feeding of investors optimism around global trade as the USMCA framework does remove at least one massive tariff related risk from the global financial market. I wouldn’t’ go as far as saying the markets are any less worried about China trade issues, however, but investors are breathing on a big sigh of relief that a significant barrier to global free trade has fallen. And indeed, just as significantly it allows the US administration to now focus exclusively on its escalating economic dispute with China.
Oil Markets
Oil traders came up for air ahead of today API inventory report and while analysing production data for September, including Russian output that increased 150,000 bpd last month to a record 11.36 million barrels per day.
However, prices remain near four-year highs supported by the plethora of bullish narratives, Iran sanctions, Saudi Arabi capacity concerns and China refinery Iranian compliance.
The API inventory data has triggered a muted reaction of sorts. The American Petroleum Institute figures for the week ended September 28 included a slightly smaller 0.9 mmbls build in US commercial crude stocks, but a larger-than-expected 2.0 mmbls increase at the Cushing, Oklahoma delivery point for NYMEX WTI crude oil futures. A bit of a saw off indeed but would probably be interpreted as a touch bearish if not for the dominant bullish narrative.
NOPEC
Also given the markets are thinking that OPEC or more specifically Saudi Arabia is powerless to stop oil from hitting $100 per barrel m there has been increasing focus on NOPEC.
Reuters
It’s apparent that, next to China trade, OPEC is the president’s biggest bugbear based on his frequent criticism of the Organization of the Petroleum Exporting Countries.
US Lawmakers have already introduced a version of the “No Oil Producing and Exporting Cartels Act,” or NOPEC, in May to address what US Congress believes is OPEC price rigging.
Various iterations of the of the bill have been tabled since 2000, but both George W. Bush and Barack Obama threatened to use their veto power to halt it from becoming law given the stratic important of Saudia Arabia in maintaining peace in the middle east. However, the considerable tail risk for oil prices is that President Trump could break with this president to deflect the knock-on effect of his administration’s foreign policy, ahead of midterm elections, which has effectively resulted in higher oil prices.
Regardless, oil traders are writing this off as idle banter given Saudi Arabia strategic importance in the middle east. But just as significantly using the US judicial system as an aggressive form of market intervention, sends off horrible signals to investors, not to mention the massive US oil and gas industry.
Gold Markets
Gold prices have been aggressively rallying overnight. Rather odd that the USD is not leading this move that has triggered a significant and very convincing short squeeze. Remember that according to CFTC data GOLD speculative net positioning increased to its highest since December 2001 as prices declined for a sixth straight month in September. Accounts sold an additional 6,804 contracts in the week to September 25, according to the latest CFTC data published last Friday, bringing total net short positions to 17,648, the most since the week of December 11 2001.
Gold has moved higher overnight primarily driven by the return of safe-haven appeal, keeping Italy risks in mind. Interesting I was discussing that fact yesterday, that in the past when we were not dealing with a strong USD narrative, Gold would pop $15-20 higher in a heartbeat on EU contagion fears. Sometimes, it’s easy to be blind to the facts, especially when getting so accustomed to positioning gold off the US dollar moves. But with l tightness in Copper markets influencing the base metal complex higher. There’s likely some knock-on effect from that correlation as well; indeed, shorts are being caught out on this one, and weaker near-term stops above $1200 level are probably contributing the flow. But for a specific technical trigger, commodity traders were focusing a Gold cross currency relationship, and it was the break of Gold vs EUR 1030 that triggered the short position carnage.
Currency Markets
The Euro
Claudio Borghi is the head of the budget committee in Italy’s lower house and unsettled markets by saying Italy would have solved fiscal problems with its currency. Indeed “Italexit” concerns have triggered a massive wave of risk aversion, but one would think the EURO should be trading much lower. Sometimes trader psychology can win over logic near-term, as traders get antsy about the risk-reward of selling EURUSD below 1.1500. I think the NFP along with US market absorbing the waves of risk aversion is causing some traders to profit take on shorts. However, is we do break the 1.1500, on full blow Italy risk, all hell could break loose, and the EURUSD could easily topple to the 1.1300 handles.
The Japanese Yen
The yen is strengthening on risk aversion but comfortable holding above secondary support levels buffeted by US interest rate differentials
The Malaysian Ringgit
Asia risk sentiment trades poorly in Asia as a toxic elixir of weaker China PMI, stronger USD and escalating geopolitical tension in the South China Sea. And factoring in the Italy risk, and slightly lower oil prices, we should expect the Ringgit to trade with a defensive posture today.
Media
Join me live from the studio on 938Now at 6:50 AM SGT Oct 3, discussing overnight price action 938 Now Singapore
Join me live in studio on Channel News Asia at 7:30 AM SGT Oct 3 discussing ASEAN currencies and oil prices Channel News Asia
Join me via remote on Sky Biz Australia at 2:30 PM SGT Oct 3 discussing currencies and commodities Sky Biz your money
