Whether a case of the Monday blues, the Dog Days of summer setting in or a combination of both, markets struggled for direction despite upbeat US economic data while quarterly earnings have failed to inspire investors. And we might chalk it up to a typical summer afternoon NY trading session.
Event-wise, apart from the Tump/Putin headline which managed to supplant China-US trade headlines, there has been very little news worth reporting as the markets hardly budged on the positive US retail sales print and remained in stasis during the Empire survey. And sterling barely blinked after UK PM May scraped through a Customs Union amendment by 305 votes to 302. However, with May yet again snatching victory from the jaws of defeat, it should provide a reasonable underpin for the pound over the near term, although this morning activity has been remarkably muted.
US Markets
Wall Street opened with a misfire. Investor expectations were running at peak optimism, and while bank stocks looked favorable, sentiment turned sour, as oil price worries intensified.
Then there was the thud that was heard up and down wall street as Netflix (NASDAQ:NFLX) fell off a cliff in late trading after posting dispiriting subscriber growth last quarter. Indeed, with one of the markets key high-fliers going into the tank, it could be a tough 24 hours for FANG stocks. FANGS have been the undisputed heavyweight champions of the equity world, and pretty much impervious to risk off and trade wars. But when you start looking under the hood and strip away a couple of FANG outperformers, US equity markets aren’t all that cheery. This negative Netflix result could spur more moves into to cash as investors may finally adopt a delayed sell in May and go away strategy.
Oil Markets
Oil markets are slip sliding away under renewed selling pressure from long liquidation as bearish sentiment grows thick with the US actively considering tapping the Strategic Petroleum Reserve, the chatter of increased Russian oil production after Putin extends the US an olive branch to add more barrels, while the US considers waivers on Iranian sanctions. The sweeping slew of bearish signals has wholly eroded market sentiment with Brent crude breaking bad now trading below May 2018 lows.
Also, with the market ignoring bullish indicators, specifically the latest production outage in Libya, where the 290,000 bpd Sharara oil field is reducing output due to an act of terrorism. It calls attention to just how big of a shift market sentiment has undergone since last Wednesday’s high-volume meltdown.
Gold Markets
Bearish sentiment continues to engulf the precious metal space after a break of gold's fundamental $ 1,240 support level overnight while breaching multi-year trendlines. Markets are becoming more e convinced about a strengthening dollar, which will unquestionably act as a most significant headwind and could continue to pressure gold lower as safe-haven demand remains muted.
In fact, the dollar slipped lower in modest price action, yet gold still fell below critical support. Ignoring even the slightest bullish indicator is an unfortunate sign and suggests we could push significantly lower when the USD moves out of its current melancholic state and starts to reassert its presence.
Currency Markets
The USD eased lower for the third consecutive day as trade war headlines decreased and some of last week’s froth give way to position neutrality. But we’ve been in this back and forth momentum on the USD since the beginning of June. Whenever the USD picks up steam, everyone boards the rally bus only to get whippedsawed by a brutal correction. But as we move into the dog days of summer, expect volumes to taper but volatility to remain elevated given considerable headline risk. But overall, caution prevails
When markets turn directionless, it’s time to revert into the interest rate matrix for clarity which suggests the USD has more gas in the tank than say the EUR, JPY or the AUD.
GBP: In general, I think everyone likes GBP higher. Therefore, the crowded trade phenomena make correction even more brutal. Again, back to basics. Assuming Brexit risk remains contained (big headline risk assumption) and with the surprisingly hawkish shift from Cunliffe, the BOE’s standing dove, a rate hike in August is all but inevitable. GBP should remain in favor.
JPY: Equity momentum has waned this week but increasing JPY outflows to suggest we may only be in the early stages of this move higher in USDJPY. With US yields ticking higher, the fundamental differential argument remains intact.
AUD: Shorts should continue to lead the way, China remains a significant risk despite some favorable commodity forecast based on positive what if scenarios. i.e. what if trade war abates.
MYR: There was a regional sigh of relief after China GDP matched market expectations. While of course taking the data print at face value, the markets are reading this as more or fewer things are not as bad as they could have been. But there is little to get excited about a slowing economy in my views.
With no “risk on catalysts”, the MYR will take cues from the RMB complex as the local markets will wait for Wednesday Malaysia CPI data. The data will be of interest given the BNM neutral stance from last week. But the market does think the zero GST effects will likely see inflation drop to the 1.7 % level which will not change markets view that BNM stays on hold for some time. Suggesting the MYR will get little support from interest rate differentials for the foreseeable future.
Also, the bearish sentiment in the oil markets continues to permeate every nook and cranny which should skew negative for MYR sentiment today.