Swimming In Muddy Waters | Daily Market Commentary with Jeffrey Halley
Investors floundered in muddy waters overnight with markets weighed down by trade talk worries and some very confusing geopolitical statements from the US President. Although in the latter case, this should no longer be a surprise to financial markets.
With preliminary talks underway in Washington DC, rumours were seeping out that China was only interested in a narrow agenda and was not inclined to discuss broader industrial subsidies or policy. With Machiavellian timing, the US announced that 28 Chinese companies were added to its “entity” list. It means that US companies need government permission to sell products to them. Not a great start then before the heavyweights of both sides meet on Thursday. Wall Street stocks reacted accordingly, finishing lower on the day.
President Trump announced yesterday that he had greenlighted a Turkish invasion of Northern Syria to establish a security zone, cutting loose in the process, the Kurdish fighters the US had used to defeat ISIS in Syria. Unsurprising, fury erupted from Republicans and Democrats alike. It led to an about-face overnight, with the President tweeting that in his great and unmatched wisdom, he would destroy the Turkish economy is the invasion didn’t follow some as yet unknown rules. The Turkish Lire fell over two per cent, making its loses for the year over nine per cent.
The hammer and walnut diplomacy from Washington DC on trade sanctions and geopolitics have left most slightly confused, myself included. For China, though, it likely sees a President surrounded by troubles on all sides and perhaps in a weakened negotiating position. China and the world have made that mistake before though. Markets will likely be stuck in a game of headline ping pong now until the week’s end and hopefully more clarity on the progress of talks.
China and Hong Kong return from holiday today, in the case of the mainland, seven days of it. All eyes will be on the China stock market’s opening at 0930 SGT, although I suspect mainlanders will be as confused as the rest of us and the open will be muted. China’s Caixin Services and Composite PMI’s will be released at 0945 SGT and should give some short-term direction to Shanghai and Shenzhen.
Wall Street fell overnight on trade fears with the S&P easing 0.45%, the Nasdaq falling 0.33% and the Dow Jones falling 0.36%. Asia is refusing to follows Wall Streets lead though with the Nikkei 225 rallying 0.84%, the Kospi up 0.63% and the ASX 200 up 0.45% despite a poor NAB Business Confidence print.
Asia may have been led higher by the S&P mini futures, that has risen 0.15% in early Asia trading. News that China’s PBOC governor would attend the heavyweight meetings on Thursday in Washington DC along with China’s vice-premier may have turned sentiment again temporarily.
Hong Kong markets reopen after another weekend of escalating vi9lence and are unlikely to feel the refreshing breeze of the stock market rallies in the rest of Asia. The escalating protests are having a real economic impact on the territory now and the Hang Seng’s performance today, will probably reflect that.
The currency markets remain rangebound and deaf to the intra-day noise from the equity markets, preferring to wait for more clarity from the trade talks. The Dollar Index was barely changed, up 0.16% to 98.97 as US Treasury yields rose slightly.
Weak German Factory data yesterday didn’t budge the Euro which remained anchored at 1.0975. Quite a lot of European gloom and Brexit noise may well be baked into the single currencies price at these levels now, as it refuses to give ground on a constant stream of bad news.
Regional currencies will be at the mercy of the ebbs and flows of the latest trade-talk gossip this week.
Both Brent and WTI crude were almost unchanged on a spot basis overnight. Wilting stock markets and concerns over global growth from the World Bank was offset by violent anti-government protests across OPEC member Iraq. Brent crude closed at $59.25 a barrel, and WTI closed at $52.75 a barrel.
Oil appears to have found a temporary equilibrium at these levels with the key supports being $56.00 a barrel for Brent crude and $50.00 a barrel for WTI.
Both contracts have risen by 0.50% in early Asian trade in anticipation of Chinese buying returning to the market after their week-long holiday.
Gold rallied above $1510.00 an ounce overnight as equities floundered, but for the 2nd day in a row, could not maintain it. Gold slipped to $1494.00 an ounce to finish 0.77% lower for the session.
The haven-driven rally appears to be running out of steam for gold, with each spike higher on headlines or weak data quickly running out of steam above $1510.00. It implies that fundamentals may be reasserting themselves again in precious metals markets as a strong dollar and firm US Treasury yields slowing sucking the raison d’etre for extended long gold positioning.
Gold has resistance at $1520.00 an ounce, interim support at $1480.00 an ounce followed by $1459.00 an ounce.