Sat, Nov 27, 2021 @ 11:49 GMT
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Head Fake or Breakthrough ??

China trade concerns are back in the spotlight after the USTR leaked headlines flew in the face of the more conciliatory comments earlier yesterday that suggested both parties are going back to the drawing board and preparing to meet. But this morning China promised a like for like response but are leaving the door open for interchange. As for the US stance, it sure seems the left doesn’t know what the right hand is doing as we move towards a critical crossroads in trade war escalations.

Generally speaking, equity markets are trading mixed. The weaker JPY is taking the NKY in tow, but China markets were feeling the pinch from an escalation in trade war rhetoric. The US markets are more or less on the fence ahead of the FOMC and trade war back in the news, investor sentiment is not great.

As we approach one of the least anticipated Fed rate announcements of the year, forgive me for paying little to no attention as it is highly unlikely that the Fed will suggest anything other than staying the course. But perhaps there might be some interest around Chair Powell’s opinion on trade war but even then, in the height of summer, is anyone around to listen?

Speaking of summer, August is a problematic month to trade given reduced liquidly which a tendency to exaggerate currency moves and frankly some of the random walks have been flat out confusing. But with trade war back in the headlines along with some key events ahead bookended by the Jackson Hole symposium, it’s a month to exercise caution.

Oil Markets

Oil prices have turned south on more reports that OPEC and Russian crude oil production rose during July, while the American Petroleum Institute also reported an unexpected 5.6 million barrels build in oil inventories providing a bearish mood heading into today’s more conclusive DOE Weekly Petroleum Status Report.

The market was caught a touch long and wrong by the surprising increase in OPEC productions but the market structure is starting to look a bit fragile to the downside especially when one considers further escalations between the US and China as the USTR statement suggesting that the President may be considering raising the tariffs on USD200bn of Chinese imports to 25% from the initial 10%

Gold Markets

A strong US$, higher US yield and buoyant equity markets and robust equity to pressure COMEX gold. But for the time being it appears we are entering a period of consolidation on both Gold with speculative selling on rallies, but prices gingerly bolstered by long-term investors while it’s expected that funds and hedger will come in purchase dips to $1200 to hedge possible tail risks from trade war escalation and US political uncertainty ahead of midterm elections.

Currency Markets

No surprises as the USD has held up its end of the bargain ahead of the Fed rate decision.

JPY: The USDJPY continues to attract the lion’s share of attention trading above 112 overnight, but with JGB’s selling off aggressively the market has tempered their extreme dovish BoJ view and are now looking at the recent Yield curve measure as a stealthy rate hike. But the question is if the back up in JGB yields is attractive enough to attract Japanese investor’s repatriation flow.

AUD: The Aussie dollar is trading lower as Base metals tanked across the board on the new reports the US will increase tariffs on Chinese goods from 10% to 25%. Also, the softer than expected Caixin manufacturing PMI has dented regional sentiment.

CNY/CNH: it was a choppy session yesterday highlighted by headlines risk that saw the USDCNH fall to 6.775 only to retrace back above 6.82 emboldened by the USTR leak. And while we are back tot he 6.80-85 range trade traders will favour buying dips with trade war risk back in the headlines

MYR: US Treasury Secretary Munching and Chinese Vice Premier Liu He were having private conversations in a bid to re-engage negotiations saw risk turn positive but the shine is work quickly on the latest escalation. Also, Oil prices are feeling pressure from supply concerns which is weighing on MYR sentiment.

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