Equity markets are revelling in the afterglow of dovish Fed minutes. Dollar bulls are left crying in their soup as US treasury yields tumbled. While oil bulls are back in town as oil prices roared with WTI gushing over $ 52 a barrel.
Despite lingering, concerns that the partial US government shut down will drag on, US stocks extended their winning streak as unbridled optimism themes surrounding trade talks continues to boost markets, while a patient Fed provided a perfect complimentary invigorator for risk sentiment.
The bulls are back in town amidst renewed optimism around successful trade talks between the US and China and broader risk recovery while last weeks data confirming OPEC commitment to follow through on their assurances to slash production has the bulls charging. This pledge was confirmed by Saudi Energy Minister overnight who suggested this strategy to boost prices was on track
Indeed, a trade deal would go a long way to alleviate concerns over slowing growth, even more so coming on the heels of yesterday’s World Bank forecast warning for global growth. While a weaker US dollar is also contributing a supportive backdrop for oil prices
But for today the question is can prices extend their run given the significant product build, continuing from last week while the DOE reported a moderately disappointing draw vs expectation. But without question optimism around US-China trade talks, broader risk recovery, and improving technical picture suggests prices will remain well supported as both the S&P and Oil markets have inarguably found solid footing.
Although gold prices started the NY session on the back foot as positive sentiment surrounding US-China trade talks spurred investor appetite for risk and sending Gold safe-haven appeal down to $1281. Gold prices stormed back as investors were lured back into action by an overtly dovish Fed and a resulting weaker USD.
A very convincing sell-off on the USD has spurred yet another great debate with trader suspecting dovish Fedspeak, technical breaks and the US shutdown as the likely trigger.
FOMC minutes were dovish and while I don’t think that was a material trigger for the USD sell-off but instead it’s the overall change in Fed narrative after Powell walked back overly hawkish “autopilot” rhetoric and is shifting to data dependency rather than policy normalisation that is one of the main factors moving the Greenback
As well, one look at USDCNH trading in the 6.80 handles indicates this latest dollar move is as much to do with easing of trade tension as it is the shifting Fed narrative.
A month ago, we discussed the possibility of Mar-a Lago USD détente 2. Trump and Xi had a Mar-a-Lago USD tet-e- tet in April 2017 whereby the US would remain moot on the big China issues in exchange for a weaker USD which say USDCNH trade from +6.95 levels to below 6.30 in the ensuing months
So, putting my conspiracy tin foil hat back on for a few moments while reading between the lines of the latest USTR statement released Wednesday which only addressed China buying more US agricultural products, with no mention of IP or US technology know how theft could we be entering Mar-a Lago USD détente 2? The USDCNH move tells me yes!!
The Malaysian Ringgit
The stars are starting to align for the Ringgit with risk on, a dovish Fed a weaker USD, lower USD bond yields and rising oil prices all suggesting the local unit should extend gains.