Uncertainty Lingers

By Stephen Innes

Asset markets continue to wobble to and fro as uncertainty lingers over Trump's tariff, while investors are left absorbing the aftershocks from Cohn's resignation.

Also, New York is dealing with the deadly snowstorm that is tearing through the North Eastern United States which is likely weighing on market participation.

A worse-than-expected US trade deficit report didn't help the free trade camp as the deficit moved to a nine-year high, further stoking the protectionist fires. The sharp widening of the trade shortfall with China is a significant point of contention, and ultimately eclipsed a firm ADP print which beat estimates at 234k (185k forecasted).

The trade numbers could not have come at a worse time for the market as the President took to Twitter, his favourite medium to express policy views, suggesting he's setting sights on China demanding a one billion dollar reduction in $375.2 billion imbalance. Peanuts really, but more significantly in his follow-up tweet he implied the U.S. is acting swiftly on Intellectual Property theft which is by far the most significant risk to the market. Following through on 301 of the US trade act could result in a swift and potential market destabilising response from China. Certainly, one road the market doesn't want to go down.

Trump is reported to be planning a tariff announcement on Thursday at 12:00 EST. And while Trump continues his sabre rattle, investors are hoping for a more efficient tariff approach directed at more obvious trade infringements. Where there is hope, there is still life in the markets.

Fedspeak remained on a hawkish bias nudging the US yields a touch higher, but with the market singularly focused on tariff talks, subtly shifting market narratives seem to matter little to traders.

Oil Markets

Investors' angst over a possible trade war escalation is sucking most asset classes into an ever-expanding tariff sinkhole. The negative economic implications are weighing on global growth sentiment and in turn denting oil market sentiment. Not helping matters, the Department of Energy showed weekly US crude production hit a record high last week of almost 10.4 million barrels per day. Probably not the most bullish of oil price signals.

Gold Markets

A strong ADP jobs report and the hawkish Fed bias have temporarily dented gold sentiment. And with the USD going through its usual pre- ECB and NFP position adjustment and other such machinations, we should expect gold prices to be at the mercy of USD position adjustments over the next 24 hours. Although we could be in for a chop feast it's unlikely we will threaten the edges of near-term ranges ahead of critical macro risk events.

Currency Markets

The Euro

EURUSD position adjustment takes paramount to extending risk ahead of the ECB decision, so markets should remain in confined ranges ahead of the ECB.

The Japanese Yen

The USDJPY is hanging firm after running into solid support at 10.5.50 level after yesterday's Cohn wobble. The currency markets are trying to find a balance between the hawkish Fed narrative and the tariff fall-out. But with the all-important NFP and specifically the wages component due later in the week, traders don't want to be caught too short USDJPY in fear of an uptick in wages inflation.

Japan Q4 GDP has come at 0.4% versus 0.2% expected. The annualised SA QoQ is now at 1.6% versus 1% expected. But currency traders are waiting to take their cues from the open of cash equity markets in Japanese as the yen remains an extremely risk-sensitive trade over the short term to medium term.

The Malaysian Ringgit

MPC stayed on hold at 3.25% as widely expected; global growth outlook remained positive and struck all the right decisive domestic external chords to keep investors happy. While their inflation assessment was even more dovish than January, all but suggesting it will take an inflationary surprise to move the rate hike dial on more time in 2018. But they certainly left the door open for further policy normalisation by signalling they will continue to assess the balance of growth and inflation.

BNM appetite for a stronger MYR is seen mitigating the inflationary impact from higher prices at the pump and providing them with more wiggle room on monetary policy.

While the MPC was a bit more dovish than expected, their rosy assessment of domestic and international economic conditions should ultimately remain supportive of the ringitt.