Asia Market Update :Worst case scenarios abound

Local traders remain the huge sellers of risk but are now pricing in worst case scenarios 
*Japan Securities Clearing Corporation (JSCC): Emergency margin call triggered for Index Futures trading
*South Korea closely monitoring markets

Oil Update

Brent crude continues moving sharply lower on today triggered by the deeper sell-off on global equities on concerns rising interest rates could severely derail global economic growth. But adding to the negative momentum the  DOE monthly Short-Term Energy Outlook revised non-OPEC supply higher for 2019, which is leading more support to the supply side of the equations.

So with prospects of lower demand and additional supply in 2019, there has been no place to go but lower as bullish bets are heading for the exits with nary a substantial bid in sight.

If there a bearish surprise in tomorrows DOE weekly inventory  report, selling will intensify two folds. With tail risk mounting, bullish sentiment has evaporated quickly.

Equity update

Equity markets were pulverised today as investors remain in full out retreat and even the most pessimistic of equity bears are still in shock by the sheer magnitude of the move. This meltdown isn’t just a mild case of the sniffles suggesting the latest sneeze from the US equity market could morph into a global markets pandemic.

#Fedgonecrazy

Presidents Trump’s scathing and ramped up attack on the Fed has the dollar bulls retreating as even the hint of policial interference on monetary policy is unsettling even if it doesn’t lead to the Feds taking their foot off the gas.

Yuan

Speaking of worse case scenarios

USDCNY fixed at 6.9098 today, +26 pips from last fixing and -96 pips from the previous closing at 6.9194 on 16:30 Beijing time as the counter-cyclical mechanism takes effect, but higher than everyone expected. So, another dubious fixing. Traders aren’t reading much ambiguity in today setting which is little more than a call to action for Yuan bear. The Pboc appears to be in little rush to steam the weakening tide.  Despite the apparent risk from capital outflows and more equity liquidations.

The Yuan has such a far-reaching influence on regional markets but even more so as the markets are becoming very suspicious of Pboc currency policy. In the face of being declared a currency manipulator, they could discard the YCC and let the currency go (weaker)

It could be potentially destabilising for global markets as it could trigger colossal liquidation in China equities and will trigger capital outflows.

The tail risk if they did for shock value, even as a temporary retaliation to the US Treasury accusations. Eventually, they would need to intervene.

However, instead of using reserves they could sell US treasuries to raise dollars to sell back to the currency markets(USDCNH) creating a nasty feedback look that will trigger broader-based US bond markets sell-off and more equity collapse

High hopes give way to steeper slopes
OANDA Trading Podcast Market Update (11 Oct 2018) 938NOW

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