Equity Bears are Crying in Their Soup Today

Lots of theories on this one but I’m sticking with the knock-on effect of improving China data and the anticipation US-China trade resolution. China’s total trade with the U.S slumped by 11% in the first three months of this year, suggesting a that if a US-China trade solution is sealed, it will provide a significant and needed boost to Chinas economy and will be much need shot in the arm for the global economy .

In addition, China has agreed to open its cloud-computing sector to foreign companies to sweeten the pot suggesting China is looking to make this deal happen.

Asia market was mixed despite the improving China data and the increasing likely hood of a US-China trade deal; we think that has more to do with possible leverage curbs as foreign investors turned cautions given past leverage unwinding moves in China market. But the market is very frothy due to the MSCI rebalancing vacuum effect, so investors may simply be booking profits while keeping some powder dry to engage on market dips.

Oil market

Thursday market sell of driven on the back of the possibility of OPEC opening the spigots full bore if the priced move to high, is starting to look more like a temporary case of the hic-ups than anything else. Mind you we still believe that OPEC will up supply as we near the US primary driving season for no other reason to avoid going toe to toe with the wrath of President Trump .

But for today at least the bulls are back in charge due to the likely hood that output from either Iran or Venezuela could drop further. While the threat of oil disruption from OPEC’s persistent ‘rabble-rouser’ producer, Libya remains front in centre. All this suggest OPEC+ potentially runs the risk of over-tightening the market on the back of their supply discipline.

As well the positive shift in risk sentiment and the weaker USD is helping market along nicely today .

That’s what it’s all about trading the topsy turvy oil market for you.

Gold

Gold bulls are trying to get off the mat after yesterday’s beat down, but bullish ambitions are thwarted by improving equity market sentiment as the S&P pushes above the critical 2900 level.

Currency markets

By new standards, it has been unusually active currency markets coming on the heels of EURJPY demand out of Tokyo on suspected flows regarding MUFG’s takeover of the aviation arm of DZ Bank. That is the talk on the street despite this deal first reported on March 1 so one can never be entirely sure what’s driving the move, but that story does seem to fit the narrative I guess.

Euro

But EURUSD move is supported by German 10 Government Bond Yield as the resurgent China data is having a positive knock-on effect in the trade-sensitive EU. For the Euro near term ambitions, we still think all roads lead through Beijing and the positive knock-on effect from China’s stimulus. For the near-term EU fortunes and by proxy the EURO, let’s hope the Chinese authorities don’t put an abrupt end to their current stimulatory cycle .

Shallow pockets of liquidity and the loonie

The market is overweight US dollar, so any negative dollar news will create a decent reversal and will be accentuated by shallow pockets of liquidity despite higher market turn over. While that seems a bit of contradiction what I mean in layman terms, spreads are a bit wider than usual due to the current G-10 fx liquidity profile. So we can see some outsized moves due to this A prime example of shallow pockets of liquidity, the USDCAD has reversed course today after making a push to 1.3400 on Thursday and is now eyeing a test of 1.3300 on general USD malaise and a significant force higher on WTI.

Yen

USDJPY has been particularly busy rocketing up nearly 100 pips from yesterday Thursday’s low water market and driven on the back of suspected talked about real flows, but the pair is catching an updraft from improving risk sentiment

Aussie

The Aussie and a bit of an upside-down day getting hammer lower on the back of the RBA financial stability report which not to unexpectedly stated risks in the household sector had increased and that the danger of a downturn in the global economy had increased uncertainty. The Aussie fell to .7115 before recovering as the external factors behind being long Aussie started to kick in including stronger China data ( China surging export surge is helping the Aussie along nicely today). As well the anticipation of a US-China trade deal is too juicy to ignore as it will provide a much-needed shot in the arm to Aussie dollar sentiment given Australia key role in the global supply chain.

This article was written by Stephen Innes, Head of Trading and Market Strategy at SPI Asset Management