Markets paused for breath overnight as soothing noises from President Trump on the state of trade play eased concerns and saw a slight reversal of the previous days’ risk aversion flows.
The emphasis is in light though; sentiment remains fragile and subject to the whims of trade headlines on either news tickers or social media accounts.
Wall Street followed Europe’s lead with stock markets rising gently after Asia finished in a sea of red. The S&P rose 0.80%, the Nasdaq jumped 1.10%, and the Dow Jones was up 0.80%. Straight from the risk aversion unwind playbook, treasury yields rose slightly and gold eased, but the mighty dollar remained firm with the dollar index rising 0.20%. Oil rose after a drone strike on two Saudi Arabian Red Sea pumping stations.
Today’s data highlights are Australian Westpac Consumer Confidence at 08:30 Singapore time (SGT) and China Industrial Production at 10:00 SGT. Neither is likely to be market moving as trade issues rightfully command centre stage for the entire region.
Europe sees German and EU GDP this afternoon. The former being will be watched after yesterday’s weak German ZEW data. Despite the rally in European stocks last night, the euro (EUR) performed poorly as the street reprices Italian budget travails into an already underwhelming Eurozone performance.
FX
The US dollar continued its march higher with the dollar index rising overnight. The EUR sagged 0.20% to 1.1200 as the Italians continue to jar nerves in the single-currency area. Unemployment in Great Britain fell to its lowest in 45 years overnight, in another rebuke to the Brexit apocalypse doomsayers, but could not save the British Pound (GBP). The GBP fell to 1.2900 as Theresa May runs out of time to get a cross-party Brexit deal together.
Regional currencies may show some signs of life after equities stabilised overnight, but the sentiment remains fragile at best, meaning flows will likely be light today.
Equities
A respectable performance by Europe and North American markets overnight will probably not be enough to flush the optimists out of hiding in Asia today. Although markets may etch some slight gains, one suspects a lot of money will remain on the sidelines as we await more clarity on the trade situation.
Oil
Oil spiked overnight following a drone attack on two Saudi Red Sea pumping stations, since claimed by Yemeni rebels. The attack followed the alleged sabotage of two Saudi tankers on the other side of the country a few days ago, which sent cold shivers through oil traders. Brent crude jumped 1.35% to USD71.25 a barrel while WTI rose 0.85% to USD61.30 a barrel.
Trade issues will continue to cap gains in Asia, but if anything, the incidents on opposite sides of Saudi Arabia will bring home how vulnerable the flow of oil is from the Middle East. An escalation of tensions with Iran may not be as fully priced in as everyone thought, including me.
Gold
Gold gave up some of its gains overnight, falling just USD3 to USD1,297.00 an ounce. The gentle move lower reflected a tentative partial unwind of risk-aversion flows rather than a change in sentiment to gold itself. Gold should remain supported on dips in Asia today as the trade situation remains the only real game in town to investors.
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Jeffrey Halley Senior Market Analyst, Asia Pacific at OANDA
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Melinda Earsdon Global Head of Public Relations at OANDA
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