A jittery start to the month of September

The movers and shakers

A jittery start to September and it was all about one classic President Trump tweet that knocked the market

“We shouldn’t have to buy our friends with bad Trade Deals and Free Military Protection! There is no political necessity to keep Canada in the new NAFTA deal. If we don’t make a fair deal for the US after decades of abuse, Canada will be out. Congress should not interfere w/ these negotiations, or I will terminate NAFTA entirely & we will be far better off.” – Donald Trump.

Bluff or fact, the markets continue to de-risk as the toxic mix of emerging markets spillover amidst concerns that President Trump moves forward this week with the next round of tariffs directed at China is chilling sentiment.

With the US and Canada failing to reach an absolute agreement last week and as China-US trade war fears remain very high, predictably ASEAN markets are suffering a big case of the jitters –

No surprise the MSCI Asia index is buckling on a combination of stronger USD and looming Section 301 tariffs.

While traders were second-guessing one another again, today’s discussion is centring on 10 % or 25% tariff on 200 billion US imports, as opposed to last week where chatter revolved around a tariff extension or 10% levy. Suggesting the President’s tweet is creating a ripple of doubt over the NAFTA deal for sure, and pushing the odds of 25 % tariff on 200 billion of US import higher.

While the odds are moving against my extension view, but as I said in an earlier note. In my view, the US-China trade issue will most probably get resolved before US midterms, but its a matter of how much pain one wants to absorb in the meantime waiting for that view to solidifying. Today could be one of those painful days. Thankfully the US is on holiday, and we may be in for a bit of reprieve.

Batten down the hatch ( OANDA Trading Podcast)

Oil Markets

Oil markets were trending lower in Asia on a combination of OPEC upping their exports by 220,000 barrels per day as both Libyan and Iraq’s southern exports hit record tops. And US drillers added two rigs according to Baker Hughes reversing a 3-week trend.

Despite the dip, the markets remain supported by the notion that U.S. sanctions on Iranian crude oil exports will eventually lead to constricted markets”, which would likely push up prices.

Also, the Nigerian oil minister suggested that if prices remain at current levels, OPEC supply curbs will stay in place.

And while the analysts continue fretting that 200 billion in tariffs could drag down oil demand, it isn’t at all clear that such type of economic headwinds will topple oil prices given supply constraints amidst the constant barrage of supply outages.

.Oil price dip in early Asia trade

Gold prices

With dollar demand intact the gold bears remain in control of the markets.

Markets have traded south of $1200 most of the day completely ignoring trade ware risk with traders taking cues for the stronger dollar.

Upticks in price continue to be faded suggesting the bears are entirely in control

G-10 Currency Action

Outside of small gap lower on the Pound at the Wellington open most of today’s action has been on both the AUD and NZD dollar

The Australian Dollar

There’s that old saying that when it rains, it pours, and it couldn’t be any more appropriate for the Australian dollar
But it was the thunder down under that started with last week miserable CAPEX miss, but today ‘s depressing July retail sales data suggests the market is on their way to test the fundamental .7100 level.

It’s not going to end up well for A$ as the ducks continue to align for a move  lower we test December 2016/January 2017 lows. Also, there a growing risk that the Aussie as a G-10 proxy for a slowing Asia/China trade will kick into high gear.

However, with AUDUSD markets profoundly oversold, traders are taking advantage of the dip to book profits and reduce risk.

Aussie dips to a 21-month low on retail sales miss

New Zealand Dollar
The Kiwi is toppling for the interest differential play were the market is now pricing in a 50 % probability of a rate cut. The RBNZ is on record early August of suggesting the chance of an interest-rate cut have increased, and it will be watching growth data closely to see whether an expected pickup materialises. But ultimately we’re getting closer to that focal point as domestic data continues to sour.

The British Pound

Spot took a bit of a knock at the open on weekend headlines EU’s chief Brexit negotiator Michel Barnier saying that he is “strongly opposed” to the prime minister’s Chequers proposals on future trade, as he advised European car manufacturers that they will have to use fewer British-made parts after Brexit. Also there some focus that May has ruled out any chance of a second referendum, but that has been her tagline all along and should not come as a surprise

The Canadain Dollar

While not a big mover today, Im completely enamoured by the Lonnie at this stage of the NAFTA game.

Being so used to trading Tumps blustery tweets I tend to take it all in with a spoon of scepticism. But with, US-Canada talks resuming Wednesday and an unnamed senior official saying the intent is to be successful. Its a bit early to give up on the Canadian dollar just yet.

Emerging Market Asia 

Indonesian Rupiah hits the skids

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