Surge and Purge

 Surge and Purge

The tale of the tape doesn’t lie in this highly sensitive headline-driven markets. US stocks spent the better part of the New York session playing headline catch up as trade tensions between the U.S. and China apparently eased following last weeks dust-up. But there is no rest for the weary as  the non-stop equity market surge and purge continues  on the exhaustive list of negative narratives  US-China trade relations remain uncertain, geopolitical risk is jumping higher, and the Muller investigation continues to wear on sentiment as investors continue to sell the news and worry about the details later

Currency markets were thrown a curve ball yesterday afternoon when a Bloomberg headline suggested that China is studying CNY devaluation as a potential tool in trade tensions. Investors need to be careful reading too much into all this nonsense as it’s incredibly unlikely given China ambition to open up domestic markets, as any move to devalue the currency will bring back memories of 2015 and could cause irreparable damage to the Yuan as far as internationalisation is concerned.

Oil
Oil prices rose along with broader markets as trade war tension eased. But WTI is moving higher again as the Geopolitical risk premiums are surging. Some traders are pointing to the latest escalation in Syria, But I suspect this move is all about positioning ahead of a high probability the US will impose sanctions on Iran; Yesterday was new national security adviser John Bolton’s official first day in office and with his hawkish view of the Iranian  conflict, sanctions are more likely than not.,
Gold
Its been a strong start to the week for the precious metal despite the CoT reports suggesting that investors are paring back bullish bets on gold.But with geopolitical risk in the middle east bubbling and the never-ending trade war headline, risks  Gold bid has remained exceptionally fir firm as the possibility of US military intervention in Syria has increased dramatically after an alleged chemical-weapons attack.There a very hawkish Whitehouse and with all option on the table, a US military strike cannot be ruled out.

 

The Malaysian Ringgit

With all the RMB devaluation rhetoric local investors remain very cautious despite such interventions very unlikely. But perhaps the coincidental timing of today’s scheduled keynote speech by Chinese President Xi at the Boao Forum in Hainan is causing the jitters.

The Ringgit is struggling to make headway this week as trade war tension continue to boil under the surface and inflows have dropped to a trickle. Risk sentiment remains extraordinarily fragile, and investors are playing their cards very close to their chest. It seems that even with trade war tension easing $Asia remains a tough sell.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Stephen Innes

Stephen Innes

Head of Trading APAC at OANDA
Stephen has over 25 years of experience in the financial markets and currently based in Singapore as the Head of Trading Asia Pacific with OANDA. Stephen's market views focus on the movement of G-10 and ASEAN Currencies. His views appear in Bloomberg, CNBC.Reuters, New York Times WSJ and the Economist. His media appearances include Bloomberg TV & Radio, BBC International, Sky TV, Channel News Asia, ASTRO AWANI and BFM Malaysia. Stephen has an extensive trading experience in Spot and Forward FX, Currency and Interest Rate Futures, Money Market Derivatives and Precious Metals. Before joining OANDA, he worked with organisations like Nat West, Chemical Bank, Garvin Guy Butler, and Sumitomo Mitsui Banking Corporation. Stephen was born in Glasgow, Scotland, and holds a Degree in Economics from the University of Western Ontario.
Stephen Innes