Asia risk is off to a solid pre-open with oil leading the way, supported by OPEC+ compliance, Beijing virus containment measures and the overall US infection rate remaining low.
Asia risk could kick into gear this morning as local investors will feel encouraged by China’s rapid response to curtailing the virus spread in Beijing – something we’ll likely see across the region when other small outbreaks emerge. It’s great for consumer confidence knowing that small outbreaks can be quickly contained while the practice of social distancing measures will keep the curve flat until (or if) a vaccine is in hand.
US overnight markets
US equities were little changed on Thursday with the S&P500 ultimately closing up 0.1% after shuffling through small gains and losses all day. A mixed data docket – weaker jobless claims but a much better Philly Fed – was not enough to distract from fact-finding around virus infection rates.
But, moving in a positive direction for both the economy and healthcare concerns, California announced overnight that citizens would need to wear masks in most outdoor settings. NY Governor Cuomo suggested he might require visitors from Florida to enter quarantine. However, overall, US infection rates remain relatively low, at 1.2%.
Risk appetite was indecisive overnight with NY equities sliding at the open on worse-than-expected US Jobless claims, but reviving on positive news from China regarding its Covid-19 outbreak.
But, overall, it was a quiet session in US equities and for what risk appetite there was, the tape was defensive.
However, this week market volumes accelerated when the indexes moved lower, which is entirely consistent with traders holding risk for a short duration and more prone to give up the bullish plot quickly on the first signs of bad news – especially at these elevated levels on the SPX.
Overall, bullish sentiment remained toned down overnight by the surge in US Covid-19 case counts. At the same time, comments from a German government spokesman weighted negatively in terms of the size of their commitment to any EU solidarity fund, which also weighed on the EURO.
While the trade has been to buy dips of late, with the US dollar moving higher it seems to be spooking both the equity and systematic community of late who are still thinking the moves on USTs the buck are risk-off. I’m not sure how long that will last as US exceptionalism is sneaking into the US dollar bid.
There’s a lot of speculation in the market that we’re nudging closer to the official launch of China's central bank digital currency, which the PBoC calls DC/EP. There may not be exchange rate implications in the near term, but it could be a milestone for RMB internationalization.
Oil is off to a good start in Asia, supported by OPEC+ compliance, Beijing virus containment measure the overall US infection rate remaining low.
Gold fell sharply on hopes of Covid-19 containment and the stronger US dollar.
Gold is struggling for traction higher and trader fatigue seems to be setting in as there’s a growing sense the bullion market is tiring of its correlation with fickle changes in "risk-on, risk-off" sentiment. Unsurprisingly this view is getting played out in the US dollar that seems to remain bid when risk turns on and off.
The economic recovery, whether fast or slow, will inevitably weigh on gold. A more robust recovery has a more significant negative impact on gold than a weaker or sluggish recovery.
Somewhat distinctive signals are emerging, at least for the short term, suggesting it might be time to pare back long gold positions.
The Australian Dollar
Having come under immediate pressure yesterday after Asian equities opened softer and slipped further on the weaker unemployment print to 0.6838 before stabilizing, the Aussie based overnight with US equities trading flat. And while the unemployment data is worse than expected, May was at least less awful than April.
The British Pound
GBP weakened ahead of the BoE's policy and continues to trade soft. The Bank of England Governor Andrew Bailey kept the threat of negative rates on the table with his comment that the bank is assessing the tool and how it’s worked in other places.
There was a bit of a whipsaw in cable price action immediately post-meeting as traders were a tad bewildered that negative rates were not even mentioned in the minutes. It was a bit of a surprise given all the recent market debates triggered by Bank of England Governor Bailey's previous remarks, just last week. And with GBPUSD 1.2425 offering up first-level support and the EURUSD eyeing the critical zone (1.1180), traders are cutting the long EURGBP positions, which played out as scripted.
The Canadian Dollar & Norwegian Krone
Oil is off to a good start in Asia, supported by OPEC+ compliance, Beijing virus containment measure, and the overall US infection rate remaining low. The Canadian dollar and Norwegian Krone are trading favorably, the latter catching a fillip after the Norges Bank's tone was less downbeat and its rate outlook was less dovish.
The Malaysian Ringgit
With oil opening favorably and risk sentiment stable, the Ringgit should trade on a more favorable tack in today’s Asia session.
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Ongoing rate curve repricing and risk asset reaction perfectly illustrate how worryingly reliant investors have become on easy money policies