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Asia Update: Trade Opportunities

Published 11/19/2019, 01:24 AM
Updated 07/09/2023, 06:31 AM

Asia update

These wish-washy recycled pessimistic trade headlines are playing out to be an excellent opportunity to strap on risk and or fade the gold market bounce.

Two things stand out for me, 1) The bull market in hope and expectations continues to roll on then. 2) Equity investors don't seem to care about conflicting media sourced messaging anymore. Yes, it looks like they are starting to take trade headlines with a barrel of salt.

PBoC

The People's Bank of China sold CNY120 bn of the 7-day reverse repo at 2.5% and auctioned CNY50 bn of one-month treasury deposits at 3.18%

A meeting of the minds?

US President Trump tweeted about a "cordial" meeting between him and Fed Chair Powell. There were some expectations that this could have a USD negative/bull steepening effect on the curve, but the market largely shrugged it off.

Currencies

EUR/USD has been active on fresh re-engagement in topside structures, mostly looking at early 2020 dates, with some using EUR vol as a discounted way to buy GBP vol. (as mentioned this morning i.e., euro as a cheap proxy Cable)

The USD/CNH continues to flutter around 7.03. But with trade talk optimism masking the dreary macroeconomic conditions, it looks like local FX traders are putting their thinking cap back on (which is a dangerous thing for a currency trader) while attempting to rationalize what's essential for a long-term currency view: trade talk optimism or the stark reality of the dismal economic conditions.

Oil

Despite the uptick in risk sentiment in early Asia, uncertainty around tariff roll back and a likely increase in US crude inventories this week are keeping oil bulls parked in neutral this morning.

Gold

The tendency of the gold market to chase and react to the latest trade headlines is obscuring underlying fundamentals where UST 10 year bond yields sitting above 1.81%, and the equity market remains frothy. A bullish gold narrative can't exist in the same space with stable bond yields and rising equity markets.

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