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The post-Fed hangover continues

May 6, 2019 Financial No Comments Email Email

Post-Fed positioning unwinds continued unabated overnight as US yields rose along with the dollar and equities fell, along with ugly sell-offs on gold and oil. Pan-Asia manufacturing Purchasing Manager Indices (PMI) data released yesterday mostly beat expectations handsomely, while Germany’s PMI was right on consensus. This perhaps hints at the light at the end of the tunnel for what has been a two-speed global economy so far this year. The Federal Reserve was the bigger story, however, as short-term positioning for a dovish Fed headed en-masse for the exit doors – despite most US data screaming the opposite.

The rise in US Treasury yields has left the yield curve pleasingly positive from 2-10-year tenors and bodes well for financial sector profitability in Q2. This was also supportive of the US dollar, as the greenback continued its relentlessly-grinding rally higher. The dollar’s role as the developed-market high-yielder currency-of-choice is a story that will continue throughout the year.

Wall Street eased overnight with the S&P 500 falling 0.20%, the Nasdaq down 0.15% and the Dow Jones dropping 0.50%. This sets up the region’s markets for a negative start, and with both Japan and China still on holiday, trading is likely to be muted ahead of tonight’s US Non-Farm Payroll data, with the street looking for a job rise of 185,000.

Regionally, traders will mostly be focused on oil and gold today as both were cremated overnight – oil fell more than 3% while gold hit four-month lows.


The US dollar closed higher at the end of New York, supported by higher US Treasury yields. This didn’t tell the entire story, however, with the British Pound (GBP) racing up to 1.3080, as the Bank of England raised growth forecasts. With the Brexit elephant in the room, however, the GBP couldn’t hang onto its gains, falling 65 points back down to 1.3015. For now, 1.3000 appears to be Sterling’s sweet spot.

The Australian Dollar (AUD) looks interesting this morning, having slipped quietly through the critical 0.7000 level overnight to 0.6990 this morning. A weekly close below 0.7000 would be a very negative technical development for the AUD.

Regional currencies will possibly feel the effects of a stronger greenback overnight and trade from the heavy side today.


With only Malaysia’s trade balance released on the data front this morning, Asia is unlikely to look past Wall Street’s performance overnight for initial direction. And with post-Fed position unwinding in full swing, Non-Farm Payrolls tonight and the upcoming weekend, traders in Asia could decide discretion is the better part of valour and lighten long equity positions as well.


The massive increase in official US crude inventories was ignored by Wall Street on Wednesday but came back to haunt energy traders overnight. Brent Crude fell 2.30% to USD70.50 a barrel and WTI fell a whopping 3.10% to USD61.60 a barrel.

I suspect the sell-off has much more to do with short-term positioning than a structural change in the supply-and-demand dynamics of the global market. Brent Crude has maintained its important USD70.00 technical support, with the charts suggesting a drop to USD68.00 if it breaks. WTI’s technical picture looks rather more cloudy. Having broken major support at USD62.50, the chart picture implies a move lower still to USD60.00 per barrel, with a failure of that level setting up a much deeper correction.


Gold is as unloved as a Venezuelan bolívar at the moment, dropping like a stone from USD1,277.00 an ounce to USD1,266.00 before dead-cat bouncing to USD1,271.00. Higher US bond yields and a stronger dollar were the culprits, sapping reasons to remain long precious metals.

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