Markets dancing to the Presidential Trumpet

The last 36 hours left me feeling like the poor guy in a Western movie, jumping up and down in a circle of cowboys who are shooting at his feet. That perverse cowboy jig is a similar one the world’s financial markets are dancing to at the moment with President Trump in charge of the music.
For now, the street is in thrall to the President’s comments, with financial markets doing abrupt changes of direction on his words that wouldn’t look out of place in Fast and the Furious film. Part of the reason is that President Trump is more “hands-on” than previous presidents with regards to the economy and the world, and is most certainly, not afraid to speak his mind.

Being the source of so much of the global volatility in the financial markets, it is logical that his comments, flippant or otherwise, would have an outsized effect. We have certainly seen this over the past two days, where his escalation of China retaliatory tariffs and berating of the Federal Reserve Chairman, continued the markets tailspin from Friday. The street did an abrupt handbrake turn in a cloud of smoke as the President said that China had called asking to come back to the trade negotiating table, erasing much of the rubber laid down by the previous days sell-offs. I note that I have not seen anything official from China regarding this.

Markets love a bit of volatility, but I can understand why planning and setting strategy for both companies and investors in this environment is a bit of a nightmare. For good or for bad, this is our new normal. One needs to either have deep pockets to ride out the volatility, move to the sidelines in cash, or find a safe harbour and ride out the storm. Global markets appear to be doing a combination of all three at the moment.
With the President Trump-eting from the shores of the Biarritz G-7, that China had called and wanted to return to the negotiating table, the global sell-off that had spilt into Asia did an abrupt volte-face. Bond yields edged higher, the dollar and equity markets recovered, and gold erased its day’s gains.
The U.S. durable goods data overnight was boosted by transport and defence orders. With those striped out the picture was less rosy, with machinery orders falling but electronics orders rising. You could cut this cat many ways, but the picture still shows a U.S. economy refusing to roll over to the trade-war doomsayers.

Asia has a light calendar with Thailand industrial production at midday (SGT) expected to show a fall for July YoY of 3.0%. Today’s main event will be German GDP at 1400 SGT. It follows a procession of weak data from Germany and a miss to the expected rise of 0.70% YoY could weigh on the Euro and see the noises for more easing from the ECB, if this were possible, increase in volume.

Equities

Wall Street bounced on the Trump announcement that China now wanted to talk again, taking the edge of Friday’s loses. The S&P rose 1.10%, the Nasdaq rose 1.32%, and the Dow Jones rose 1.05%.
Asia will have breathed a sigh of relief after yesterday’s session, and will likely happily follow Wall Street’s lead and send regional bourses higher. Japan’s Nikkei is 1.0% higher in early trading with Australia also in the green.

Currencies

The U.S. dollar rebounded overnight following Trump’s China comments. Notably, USD/JPY regained most of its losses, rising to 105.90, as safe-haven buying of Yen unwound. Euro could not sustain its gains, falling back to 1.1100 in New York trading. With German GDP due this afternoon, the sharks may be circling for the single currency if the data disappoints.
Regional currencies should benefit from the positive trade-sensitive environment today. There will be an air of caution though in Asia, capping gains though, as nervousness persists about the President’s social media account changing sentiment negatively as quickly as it recovered.

Oil

Oil traded cautiously overnight, refusing to get caught up in the exuberance of the equity markets, perhaps reflecting the slowing economic data around the world ex the U.S. Hopes of progress between U.S. and Iran capped gains with Brent crude falling 0.80% to $58.00 a barrel and WTI falling 0.70% to $53.70 a barrel.
Asia is likely to content itself to observe from the sidelines today as we await more clarity, or not, on U.S. China trade.

Gold

Gold gapped higher from Friday’s close yesterday, briefly touching USD1555.00 an ounce before settling around USD1545.00 an ounce for most of the Asia session. President Trump’s China comments saw gold make a managed retreat, perfectly filling the gap to Friday’s close at USD1528.00 an ounce.
Gold is slightly lower at USD1527.00 an ounce this morning, but the textbook gap fill is a very positive technical development. More cynical heads are clearly ruling the gold market at the moment and are refusing to listen to the short-term noise from the White House.
Gold should find support in Asia around these levels with the high overnight at USD1555.00 an ounce initial resistance followed by the $1600.00 region.

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