Lest we quickly forget

Prepared by Jeff Halley, Senior Market Analyst

Lest we quickly forget

Last Friday’s mini-meltdown on equities appears to have been quickly consigned to history. Investors ignored quite poor housing data and lower US consumer confidence numbers, preferring to follow Europe’s lead where bourses finished the day solidly in the black. Wall Street closed higher with the S&P 500 rising 0.72%, the Dow Jones up 0.55% and the Nasdaq up 0.71% with the previously-unloved financial and energy sectors leading the way.

As markets finally concluded that a minuscule one-day yield-curve inversion is not a prelude to global economic Armageddon the very next day, US Treasury yields rose ever so slightly along with oil while gold gave up some of its recent gains. Only the greenback stood firm as FX traders are a gnarled and sceptical lot, the US dollar index rising 0.21% to 96.77 as the flatline in FX volatility continues in 2019.

The volte-face in sentiment suggests to me that despite all the noise, markets are flip-flopping on short-term data as we await the conclusion of the only real game in town, the US-China trade talks. Last Friday’s sell-off was just as likely about excessive long positioning in equities and risk assets as it was about dire predictions by an oracle-like bond market. If last night’s poor data had come out on Monday for example, a deeper sell-off and more global hand wringing would likely have ensued.

The US Consumer Confidence print at 124.10 (versus the expected 132.5) late in the New York session was a big miss and may give Asian traders food for thought before hitting the buy button on risk assets today.

The Reserve Bank of New Zealand announces its rate decision at 0900 Singapore time this morning with markets expecting this to remain unchanged at 1.75%. As ever, the devil will be in the detail, and it will be the accompanying comments that will carry the most weight.

FX

The US dollar held firm overnight although we saw some emerging market currencies regain some of their losses as the weekend panic subsided, most notably the Turkish lira (TRY), which rallied 2% just before Europe’s open on stop-loss buying and the Turkish central bank squeezing rates to defend it.

The greenback continues to mark time against the majors as FX markets exhibit fewer mood swings than the bond or equity markets.

Equities

Asia’s stock market should open higher today following sprightly sessions in Europe and North America. Although Wall Street ignored the rather poor US housing and consumer confidence data, Asia may find its irrational exuberance tempered by it and gains may be more modest. As ever these days, we are just one headline away from a U-turn in sentiment so traders would be wise to remain nimble.

Oil

Oil gained overnight as confidence returned to global markets as quickly as it vanished over the weekend. Brent crude rose 1.25% to USD68.80 a barrel and WTI rose an impressive 2% to regain the USD60.00 a barrel handle. Traders are going back to their go-to analysis of OPEC+ cuts, Venezuela and Iran to find a news story to fit the price action.

Gold

Gold fell 0.50% to USD1,315.50 an ounce as markets reinstated risk trades and unwound safe havens. The pullback is more noise than substance, and overall, gold’s technical picture remains very constructive.

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