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The New Crossover Model Nobody Wants

A substantial fall in official U.S. crude inventories boosted energy stocks overnight, lifting Wall Street higher on an otherwise relatively quiet news day. The other talk of the town was that U.S. 30-year Treasury yields fell to record lows at 1.90% before easing to finish at 1.94%. That’s only half the story though; for one of the few times in history, the 30-year yield is now below the dividend yield of the S&P 500, currently at 1.98%.

American’s love their crossovers apparently, but I suspect this one is a model no-one wants to buy. That’s because the last time this crossover occurred was in 2008 during the winter of the global financial crisis. The recession naysayers were out in force, yelling that it was yet another sign that we were all economically doomed, but at least Wall Street didn’t see it that way. That said, the fall in global bond yields since the start of the year implies an economic slowdown was on the cards despite the trade dispute. With the rush into high-quality government bonds continuing unabated at these levels, the implication is unless something moves positively on the trade front, the downturn will become a handbrake turn.

Asia’s data calendar is light today with New Zealand’s ANZ Business Confidence and Australian Private Capex both having the potential to weigh on sentiment in the lands down-under. Singapore PPI this afternoon at 1300 is expected to drop by 4.60%, further underling the slowdown in a bellwether of world trade.


Wall Street rallied as oil prices shot higher on inventory data, with energy companies leading the way. A thankful pause from the U.S. President’s social media accounts additionally allowed some confidence to tentatively appear. The S&P 500 rose 0.65%, the Nasdaq rose 0.40%, and the Dow Jones rose 1.00%.

The recovery looks tentative at best, with traders still cautious of headline bombs emanating from the White House. Asia should follow Wall Street’s lead and rise tentatively today, but the tone will be nervous with traders and investors ready to evacuate to the emergency exits at the first hint of trouble.


The FX market seems content to continue watching unfolding events from the sidelines, the dollar rising against the G-10’s quietly with the dollar index finishing 0.25% higher at 98.24.

The exception was the British Pound where the GBP plunged one per cent at one stage as the Queen announced that the U.K. Parliament would be suspended until mid-October, just two weeks before the October 31st Brexit date. GBP fell from 1.2290 to 1.2150 before recovering to 1.2200 this morning.

Given the magnitude of the decision and the outrage across Britain, for GBP to fall only 0.60% on the day is quite an impressive result. The implication could be that the street is now positioned very short Sterling for a hard Brexit. Any movement whatsoever on Brexit by either Europe and or Britain could produce an aggressive “Boris-bounce.”


Oil soared overnight, boosted by an unexpectedly high fall in U.S. crude inventories following a similar number by the API inventory numbers yesterday. Crude inventories fell by over 10 million barrels, and the tight supply picture was reinforced by gasolene inventories also falling by a larger than expected 2.1 million barrels. The two often diverge. Along with tight Opec, Non-Opec compliance, it suggests that despite the global slowdown, the supply-demand equation is relatively balanced despite predictions that oil consumption growth will slow in 2020.

Brent crude rose 1.60% to $60.50 a barrel and WTI rose 1.80% to $55.95 a barrel. With trade tensions hanging like a dark cloud threatening to rain over oil prices, Asia will take a cautious approach to the overnight price action with gains tentative at best. More likely is that we will see some gentle profit-taking ahead of the European session.


Despite another leg down in U.S bond yields, gold pared its gains yesterday as profit-taking set in. Gold fell 0.25% to $1538.50 an ounce as stocks, and the dollar rose.

The pull-back in the bigger picture, is minuscule, with the technical and macro view remaining very supportive for the yellow metal. We are only one tweet away from another leg up on gold at any one time, and this is the attitude Asia will take in today’s session. Mr Trump’s mysterious phone call from China risk rally is fading quickly from investors minds.

Near-term support is at $1525.00 an ounce with resistance initially at $1555.00 an ounce. The technical picture is suggesting a break of $1555.00 opens a test of the $1600.00 region as gold continues to be supported by economic and geopolitical safe-haven status.

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.

Jeffrey Halley

Jeffrey Halley [4]

Senior Market Analyst, Asia Pacific
With more than 30 years of FX experience – from spot/margin trading and NDFs through to currency options and futures – Jeffrey Halley is OANDA’s senior market analyst for Asia Pacific, responsible for providing timely and relevant macro analysis covering a wide range of asset classes. He has previously worked with leading institutions such as Saxo Capital Markets, DynexCorp Currency Portfolio Management, IG, IFX, Fimat Internationale Banque, HSBC and Barclays. A highly sought-after analyst, Jeffrey has appeared on a wide range of global news channels including Bloomberg, BBC, Reuters, CNBC, MSN, Sky TV, Channel News Asia as well as in leading print publications including the New York Times and The Wall Street Journal, among others. He was born in New Zealand and holds an MBA from the Cass Business School.
Jeffrey Halley
Jeffrey Halley

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