Stocks and risk asset have opened relative composed despite data released on Sunday, which showed China's exports unanticipatedly shrunk with sales to the US plunging 16 per cent as trade wars grumble.
The People's Bank of China (PBOC)stimulus action on Friday comes at a timely juncture after it said they would cut the amount of cash banks must hold as reserves to the lowest level since 2007, infusing liquidity into an economy facing both a domestic downturn and blustery trade-war headwinds. You don't have to look much further the China exports sector from confirmation that the Chinese economy is struggling as China trade is the biggest casualty of increased US tariffs.
China Trade headlines highlight a contraction in exports, further decline in imports and narrowing surplus. A resounding negative yes, but if you look at these in the month to month terms, they are not nearly as bad as initial headlines suggest. Imports are up 2-months in a row, for instance, while further lending in Total Social Financing later in the week is expected to rise offsetting slower trade.
Although markets are always on edge waiting for the next trade war headline; they're leaning on the pillars of support from monetary policymakers as the expectation is running high for a significant monetary policy response by global central banks. Indeed, The European Central Bank (ECB)is expected to deliver a substantial policy package on Thursday while Federal Reserve Chairman Jerome Powell's last speech before next week's policy meeting cemented views for another Fed cut.
With investors ability to dial-up and down leverage at a moments notice, the market will remain very volatile to both macro data in headline risk this week.
The RRR cut will most likely skew China’s money market rates on a downward trajectory and could generate some short-term pressure on the RMB. On the other hand, progress in the trade talks should buttress the depreciation pressure while the Pboc is expected to remain loyal to implementing countercyclical measure to hold the Yuan stable ahead of the US-China trade talks.
Concerns regarding tariffs and trade policy uncertainty remain. But the fast-paced positive developments on the geopolitical landscape and better than expected global macro data out of China and Europe set the stage for a scintillating oil market rally that was boosted when the US announced a new section of Iran and Russia said it would tighten it's OPEC compliance commitment by trimming production in September.
While the surprisingly positive shift in Europe and China economic data has most welcomingly walked back some of the more bellicose economic doom and gloom scenarios, the Russian compliance is also a significant boost to sentiment as it puts to rest any thought that a fissure is building in the OPEC and friends supply cut agreement.
However, oil bulls can't seemingly catch a break after the rally sapping surprising build in The American Petroleum Institute oil inventory survey has throttled WTI upward momentum dead in its tracks.
Gold markets took an absolute drubbing on Friday as hefty positioning caught up with the reality of the massive uptick in risk sentiment triggering waves profit-taking and stop as newly minted defensive strategies hurriedly ran for the exits. Reports Gold CTAs who was showing all 12 strategies still long, first exit levels were triggered at Spot 1512.6 as the market parabolic have shifted to short term selling mode
While the lower than expected Jobs headline report provided a temporary updraft on Friday, any hopes for an extended rally were dashed by Chair Powell who maintained a positive economic outlook which all but snuffed out the market expectations of a more significant 50 basis point response from the Fed.
However, the problem that Gold markets could face is, just as the Bank of Canada threw cold water on the prospects of aggressive rate cuts last week, there’s a small but growing chorus getting more vocal but the day thinking that central banks are gingerly walking back from the cliff edge of rate cut mania.
So, in the absence of Fed Speak due to the pre-FOMC blackout, global economic data will hog most of the limelight.
Absent a trade deal or barring fiscal stimulus in core Europe; analysts continue to expect US yields to " catch down" to negative global yields which could ultimately provide the cure-all elixir to reverse Gold markets recent slide.
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Soaring US yields trigger the wrecking ball effect as yields become a source of volatility for risk, rather than a source of support