Familiar Themes With Little Inference

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by: Dean Popplewell

By Stephen Innes

The absence of geopolitical escalations (for now) has helped market sentiment steady as traders work familiar themes with little inference. But outside of earnings-inspired gains in equities, global markets remain incredibly uncommitted, with despondent G-10 currency traders desperately seeking some direction.

Wall Street pushed higher overnight on robust corporate earnings, encouraged by a stellar showing from Netflix (NASDAQ:NFLX), which powered technology shares higher. Indeed a breath of fresh air as traders turn focus to data and corporate profits, yet remain cautious knowing stock markets are only one presidential tweet away from upsetting the apple cart.

Yesterday's China data continued to be discussed but in negative context, despite Q1 GDP coming in on expectations. Indeed, escalating trade tensions amid China's deleveraging policies, on the surface, does suggest domestic growth may be cresting.

The PBoC announced it would cut reserve requirement ratio (RRR) by 1 ppt for most banks by next week, but this is being widely viewed as a reprieve for the banks to repay MLF loans and not a tweak in monetary policy.

Oil Market

The American Petroleum Institute figures for the week ended April 13 showed a 1.0 million barrel decline in US crude oil inventories as crude oil imports fell 644,000 bpd, more than enough to counter the 35,000 declines in refinery crude runs. The draw was slightly more than the consensus expectation, which has provided a late NY afternoon fillip to oil prices.

With geopolitical concerns and supply disruption implication simmering on the back burner, and with few new conclusions on that front, traders were in consolidation mode while debating China's economic view in the wake of post Q1 GDP.

However, focus remains squarely on the possible re-imposition of sanctions against Iran, because this would boost oil prices dramatically, as the country is a weighty player in the global oil supply chain.

Gold Market

Gold prices traded below 1340 overnight on the back of the fallout from yesterday's China data bump, which has some traders thinking the mainland economy could slow down much faster than expected. But with geopolitical and trade war concerns still fermenting, the move provided was short-lived. But with the lack of any geopolitical or trade war headlines, gold will also be very susceptible to shifting dollar sentiment, which also played a factor in the overnight sell-off as the dollar picked up some steam on the softer China economic view. Finally, positivity from the US earnings season has likely caused a bit of asset rotation out of gold and into equities. All of this is suggesting long gold trade will continue to be a patience game over the short term.

Currency Market

"Money is made by sitting, not trading." - Jesse Livermore. I hope that comes true, as we currency traders have been doing a lot of sitting lately.

British Pound

Sterling bulls have tamed overnight on the back of very sobering wages data. But not to fret, they get the second kick of the can tonight when the critical CPI data is released. Indeed, sterling bulls got ahead of themselves way too long, but with little else to take a view on, G-10 currency traders need something to run with. Unfortunately, it wasn't the running of the GBP bulls most had expected.

Japanese Yen

Equity markets are alive and kicking, and with the US yield holding steady, there's very little to suggest. Similar to yesterday's view, we're waiting for the next headline.

Euro

A tug of war on many levels with weakness in core data, but ECB members suggest it's transitory. However, with trade war rhetoric still echoing in the White House halls, there doesn't appear to be a great deal of upside on the trade. Again, waiting for a more definitive signal from the USD.

Malaysian Ringgit

The bond market continued to run quiet and traded slightly softer tracking the overnight move in UST, which continued to weigh on ringgit sentiment. The bottom line: inflows should remain low, as we expect trade to stay in a sideways direction. But with energy prices holding up well, it should limit any further deterioration in the ringgit, and it's unlikely we will test 3.90 unless oil prices surprisingly upend.