Wall Street retreated on Friday as President Trump said he wanted an all or nothing trade deal with China and was in no hurry to make one.
The Chinese pre-talks delegation cancelled their farm visits to Iowa and Montana to return home. That was probably the highlights of the weekend which was relatively quiet on the news front relative to the past few weeks.
With Japan on holiday today and the U.S. Emmy awards screening this morning Asian time, markets are likely to get off to a tepid start with a plethora of Federal Reserve speakers to come this week and U.S. GDP on Thursday. It seems like a good time to announce the winner of the Irony Award; therefore, the winner being Indonesian V.P., H.E. Yusuf Kalla who is a panellist at the U.N. Climate Summit today in New York. Readers in South-East Asia will note the irony as smoke from thousands of illegal fires in Indonesia cloaks the region.
Indeed the week’s highlights may well come from the opening of the U.N. session in New York. The Iranians are present, the Brazilian President will be singing Disco Inferno and President Trump himself is addressing the U.N. which is almost sure to provoke enough hot air from delegates as to ruin any hopes of the week being carbon neutral. The irony is palpable.
Asia has an almost empty calendar today, with only Singapore PPI at 1300 SGT. It is the first of a series of data points this week from the city-state that by weeks end will confirm the MAS will almost certainly ease monetary policy in October.
The week is, therefore, shaping up as one of those that will be dominated by sound bites and not data. Markets tend to get themselves tied up in knots chasing headlines and by the weeks end one tends to find, that playing the range or staying out altogether was probably the best strategy.
Optimism evaporated in Friday as the China delegation headed home early and President Trump signalled he wasn’t interested in a partial trade deal. Although I believe these actions are both just pre-talks manoeuvring, it was enough to send Wall Street lower. The S&P 500 fell 0.49%, the Nasdaq fell 0.80%, and the Dow Jones fell 0.59%.
Japan is closed today for Autumn Equinox, but the Australian ASX has climbed 0.40% after the Commonwealth Bank Composite PMI outperformed at 51.9 this morning. Asian markets though will probably adopt a more sanguine approach after a quiet weekend and with a data vacuum ahead in today’s session. Investors will be nervous after Friday’s trade jitters.
The U.S. dollar rose against the G-10 on Friday following the early departure of the China trade team. Treasury yields also fell slightly boosted by pre-weekend haven flows and the Federal Reserve adding more liquidity to the short-term repo market. The dollar index rose 0.21% to 98.48.
The Britsh Pound showed jus how dangerous headline chasing could be, with belligerent comments from Europe on the Brexit backstop yanking the carpet from under the recent rally. The GBP fell from 1.2580 to 1.2470, finishing down 0.40% on the day. It is probably the new norm for GBP traders now as we head into the last month before the Brexit cut-off. The Labour Party conference, the U.K. Supreme Court ruling on the legality of the suspending Parliament, due today, and the possible collapse of Thomas Cook this morning U.K. time are all potential GBP flashpoints.
Asian currencies will likely concentrate on the potential nuances of the U.S.-China trade talks from Friday, and move lower, reflecting the trade uncertainty. The move though will probably be a soft reset rather than a mad rush for the exit door.
Oil managed to avoid a sell-off on the trade jitters of Friday as traders, fearing another re-run of the previous weekend, bought oil to head Middle East event risk. The net result was that Brent crude rose 0.40% to $ 64.70 a barrel and WTI finished flash unchanged at $58.00 a barrel.
You can never say never, but with an Iranian delegation apparently due to attend the U.N. session opening week in New York, it is hard to imagine too many fireworks in the gulf this week. News that Iran intends to release a seized British ship shortly should also calm nerves.
With that in mind, WTI’s 0.40% rally to $ 58.90 in early trading is unlikely to be the precursor of a more substantial jump. With trade woes hanging over markets in Asia and an uneventful weekend in the Middle East, oil will probably run into plenty of sellers during the Asia session.
Pre-weekend risk hedging and trade concerns saw gold rally 18 dollars or 1.20% to $1517.00 an ounce on Friday. If anything, it proves that there is still life yet in the oldest of safe-haven trades and that short of a U.S.-China trade deal, being short under $1500.00 is a dangerous trade.
That said, gold does not seem to have the momentum to break the topside of its recent range at $1525.00 either and so for now, playing the $1480.00 to $1525.00 range and avoiding the dreaded whip-saw appears to be the way to go.
Gold will probably see some of the risk hedging buying on Friday unwound in Asia this morning. Indeed, gold is three dollars lower at $1514.00 an ounce.
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