wait a moment

Still looking for a silver lining, will the FED suprise ?


Risk tried hard to recover overnight but struggled in the absence of any positive headlines to drive market action. While investors continued to fret over China’s president Xi on the tape saying that “no one can tell China what to do” and the country will stay with its current ‘policy agenda’. And certainly not at a ringing endorsement for US-China policy harmony. Meanwhile, President Trump shifted away from tweeting about trade and instead focused domestically, urging Fed Chairman Powell “not to make yet another mistake” by raising rates. But he’s not alone in this camp.

The market remained in risk-off territory overnight, but any thought of extending the current equity market sell-off has given way to caution ahead of the Fed. Traders are reducing positions as fears in the rate markets continue to percolate as a bearish chorus of respected investors including Jeffery Gundlach and Stan Druckenmiller are explicitly urging the Fed to consider a pause. While US economic signals are not flashing red but to keep the US economic momentum heading in the right direction, many market participants believe the Fed should provide investors with some breathing room after higher interest rates coupled with tighter liquidly conditions have sent equity markets on a downward spiral since October. The market currently has around 18 basis points priced into Friday. But indeed, what seemed like a sure hike only last week now seems questionable, with pressure mounting on the Fed from all sides.

Again, this is a case of Fund managers wanting their cake and eat it also. The only reason why we’re hearing them bark is due to the sharp sell in equities that started at the end of September. For years all the markets heard from the street was “too much accommodation leads to investor complacency”, “traders are feeding at the trough and living off central bank largesse “with everyone screaming bloody murder that the Fed should let the market do its job. So the current reaction from the street seems highly contradictory to everyone’s stance only six months ago. But when investment fund yields are at stake, everyone wants a  voice in the monetary policy equation. None more so than President Trump who continues to gauge his approval rating by the current level of the S&P

What is sure from my chair is the Fed will deliver a 4th rate hike for the year on cue but what is entirely up in the air is which key cardinal point the meeting will shift too.

Oil Markets

Oil continued its losing streak while showing little  respect for today’s API inventory data, or Libya force majeure at El Sharara for that matter. Traders have fully digested the swath of price-depressing supply-side news. Cushing inventory build, EIA has shale oil output pegged to top 8 mln bpd by year-end, possible delays in OPEC+ production cuts and the usual assortment of compliance concerns as we all know everyone has their agenda and their domestic priorities.

But indeed, Commodities are not immune to concerns about the global economic outlook either, and this is driving negative sentiment across all asset classes. The recent spate of critical financial data misses across the globe continues to weigh on oil markets with the latest European retailing concerns driving home just how dire things are this holiday season which has caused consumers to hold back on holiday spending.

Brent traded to the lowest levels since October 2017, as oil markets are looking for some help from stabilising equity sentiment which has been fleeting at best overnight. Leading up to the Fed decision oil markets, in the absence of any game-changing OPEC headlines, will likely trade in sympathy with risk while WTI ’prices will mirror their strong correlation with S&P 500.

But we could get some headline risk entering the picture later today Russia will be holding talks with oil producers regarding implementing the production cuts agreed in cooperation. But within this backdrop and to shore up the flagging domestic economy, Saudi Arabia is planning a 7% increase in government spending for 2019 and would probably what to see higher oil prices to pay for this spending.

In summary, the toxic combination for oversupply worries and global growth distress should see oil prices languish into year-end as negative momentum is leading price action while the holiday season is keeping investor money parked on the sideline knowing that the same opportunities will be on offer early January.

Gold Markets

Gold climbed as investors shifted to safe havens amid the most significant US stock tumble since October 2017. Investors are now pivoting to the Federal Reserve’s final policy meeting of 2018 for clues as to the future direction of monetary policy where a dovish expectation has gold parked just below the critical $1250 level as we enter the latter stages of COMEX trade in NY. A less hawkish Fed would trigger weaker USD response and should see Gold flourish.


The Indian Rupee continues to blossom on the back of “carry trade” appeal and lower oil prices. And its expected the Asia high yielders (IDR and PHP) will continue to shine as the USD is widely expected to soften as the Feds come to the end of this current rate hike cycle. But it was the dovish early warning signals offered up only three weeks ago by the Fed that has triggered inflow into the high yield Asia basket. But more significantly for the much-maligned India capital markets, the strong Rupee is offering a lot of breathing room heading into the year-end.

Malaysian Ringgit
The Malaysian Ringgit has been catching a ride on the Asia FX carry trade momentum, but with oil prices heading south and expected BNM rate cut in 2019 the outlook looks less appealing.

They Yuan remains a short-term binary trade very much pegged to the Fed policy outcome, but over the longer run, a weaker domestic economy and negative shifts in the current account suggest the Yuan could struggle beyond the trade narrative.


The Yen has been the primary beneficially of haven flows this week. While my long-term outlook remains JPY positive on a possible BoJ policy shift. Short term, 112.30 has held well during recent bouts of risk off, so trader was in buying the dip overnight to 112.30 while layering stops below 112.15

Its all about position reduction ahead of the Fed. But price action suggests the market is close to home on that front.

Australian Dollar 

The Aussie is very much in the oversold territory given the weak commodity outlook and waning risk sentiment but if anything short Aussie positions could pare back some risk ahead of the Fed. But it’s hard to argue against the Australian dollar lower given China risk and housing and credit issues domestically.

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