Week Ahead: “Covid-19, And The ‘Cleanest Dirty Shirt’ Argument”

During a week when the coronavirus threatened to become a pandemic that hammers global growth, with reportedly 6 % of the world population under quarantine, and probably more as China continues to adjust the reporting goal posts. Yet the US market continues to whistle while walking through the graveyard with the S&P 500 Index advancing four out of five days, posting three records along the way. Investors took solace in robust economic data, better-than-expected earning reports and the fact a quorum of the global central banks have the markets back which we will highlight in the Asia Week Ahead section

A question that’s cropping up a lot right now is: Why are equities up and bonds up too? The S&P 500, the Nasdaq, and the Dow Jones Industrial Average are all trading around record highs while the 10-year US Treasuries yield is at 1.58%, from 1.9% at the start of the year.

The US Federal Reserve, in an attempt to avoid another meltdown in the repo market as seen in September 2019, overcooked things when it injected billions of dollars of cash into the system to push rates lower. This left banks with sufficient money, which is now being used to buy bonds and equities. Particularly growth stocks which have only been able to gain “because” Treasury yields are so low. And while growth and defensive stocks have been in favor, the S&P500 isn’t as risk-on as the index reading might appear. The leaderish is very defensive and narrow around growth names (US tech, basically), but that has not stopped the market frustrating the bears in the past and now feels no different. Depressing the returns available through the duration in risk-free government bonds creates incentives for investors to re-allocate capital to stocks even more so into the resilient US markets.

This is essentially the “cleanest dirty shirt” argument for owning US assets, which is particularly salient at the moment given the likely asymmetric growth impact of the coronavirus shock.At present, the growth impact of the virus remains expected to be more severe in China (and hence in Germany) than in the US. Which in turn is providing massive inflows into the US dollar

S&P 500 Chart

But despite the Covid19 hanging like a dark cloud over Asia and will continue to be a market focal point well into March. So far, the US economy has been immune to the flu’s nasty effects, and its thought that if there will be an impact, it will be both small and transitory. But the key to the bullish US storyline is that fundamentals are strong, and the economy continues to grow, which basically acts as the key MythBusters debunking the recessionary fear-mongering.

Coronavirus has probably caused investors to be underweight, or at least not get involved in this rally. But low rates are keeping the juice in the market led by defensives, and the harmful data that is expected is now so well-flagged that it has become irrelevant. And since stocks are as much a momentum story as anything else while getting juiced by the Fed repo remedy, investors might feel they have little choice but to get on board or risk getting left at the station.

Week Ahead

This week’s economic dockets will provide a heavy dose of Fed speak with garnishing’s that will provide insights into current-quarter housing and manufacturing activity. With respect to Fed communications, the minutes of the January 29 FOMC meeting (Wednesday) will be a focal point for traders—in particular, discussions around the Fed’s policy review.

Last week, we saw a surge in the number of new Covid-19 cases in Hubei due to the adoption of new diagnostic methods; however, outside of the province, the number of new cases continued to trend lower. In response to adverse economic effects of the outbreak throughout the ASEAN region, policymakers are putting together fiscal and credit support, while mulling over further rate cuts. On the data front, Malaysia’s Q4 growth surprised to the downside as exports deteriorate. Next week, economists are expecting no changes to Indonesia’s policy rate, while Thailand’s growth is likely to remain weak at mid-2% in Q4. Looking ahead, risks to growth and rates outlook in Q1 remain tilted to the downside amid the Covid-19 outbreak.

Proposed ASEAN stimulus packages

In addition to probable rate cut to the MLR and LPR cuts in China, the Ministry of Finance advanced RMB848bn of the local government bond quota, while local governments provided various tax and fee relief measures to local companies.

In South Korea, Finance Minister Hong and BoK, Governor Lee held a joint meeting. Without giving details, they pledged emergency measures to minimize economic fallout from the Covid-19 outbreak,

Taiwan is seeking a special budget worth NTD60bn (USD2bn) to support profoundly affected sectors like F&B, tourism, transportation, and agriculture

The Thailand Convention and Exhibition Bureau (TCEB) plans to spend THB200m to support affected sectors, in partnership with the Thai Chamber of Commerce (TCC) and SET-listed companies – with more stimulus measures to follow.

Malaysia to announce a stimulus package early next month, to support growth, which is likely to include targeted spending for affected sectors, including tourism and manufacturing.

Singapore is likely to announce a series of stimulus measures in response to the Covid-19 outbreak, included in the 2020 budget due out on Tuesday.

Key Asset Classes

Currency Markets

With the coronavirus hitting and uncertainty mounting, the U.S. dollar indexes have steadily strengthened, but that is not the entire story. Advanced economy currencies’ weakness is driving much of the dollar strength. Most of the indexes used to measure “the dollar” are really indexes that measure the euro with a few other currencies in there for good measure. Meanwhile, emerging market currencies are holding up well.

The relatively indifferent Asia FX reaction to the Hubei news suggests that investors continue to continue to look through the economic impact.

The USD has been enduringly bid d, although FX vols are only slightly higher. The downtrend in USDCNH since September 2019 remains intact, 12-month forward points narrowed further, and an ongoing sell-off in risk reversals over the past week suggests a more limited demand for protection against a CNH sell-off as the PBoC is offering up a convincing backstop.

Overall the somewhat muted reaction may be attributable to the fact that the number of new cases outside China has failed to rise. However, investors’ sanguine response to the economic fallout from the coronavirus will be tested in the coming weeks, so at this stage of the game, Asia FX investors don’t want to run to far ahead of the economic realities. Hence, they remain cautious about adding more currency risk before assessing the depth of the economic fallout.

Perhaps a bit of this phenomenon along with the US long weekend effect.

There are three main channels for this fallout.

One is the tourism channel. The impact is easily quantifiable, and the initial reaction of the markets has been most punitive for the more vulnerable economies on this metric – THB and SGD. What’s harder to assess is the damage via the other two channels – supply chains and demand contraction, and for this, we need to see the empirical data. For that impulse, the release of Korea 20-day exports (Feb 21) is essential

The Euro

Interest rate level differentials between the US and NIRP( EURO) economies remain quite broad in a historical context, and these wide differentials continue to attract capital flows into US assets as is evident from persistent strength in the general dollar

Investors also, to s large degree, continue to ‘look through’ the economic impact of coronavirus, ostensibly driving EUR weakness via long carry positions.

But if the recent EURUSD weakness reflects downside risks to global growth from China, rather than a hunt for yield carry, then the EM currencies which have held up well so far could weaken abruptly if China data comes out worse than expected. For EURUSD itself, global growth concerns could overwhelm any short-covering of long EM carry positions. That, in turn, could drive further weakness in EURUSD and return EURUSD-ADXY correlations to pre-summer 2019 levels.

Again, it’s the “lose-lose” situation for the Euro that we suggested at the start of the year.

But does the Euro have legs to run? the market got paid out of a fair bit of puts in the past few sessions. The risk reversals are going better bid for puts.1month 25-delta risk reversal is 0.25 vol bid for puts – it was 0.5 bid for calls a week ago. Positions are not stretched vs. 2015 peak of 84% open interest


In the battle of the weekend, hedges vs. Covid-19 data surprise, secondary transmission clusters, or if you think China reporting transparency is questionable. The one clear winner was gold as the yellow metal continues to shrug off an enduringly influential USD buoyed by ongoing investor concerns over COVID-19. It appears that investors are continuing to seek gold as a quality asset or hedge against the economic impact of the outbreak. And with US markets closed on Monday in observance of Presidents Day. This will leave Asian and European markets, which appear more sensitive to COVID-19, in control of the gold market. So with little chance to buy a dip on Friday after a consensus headline retail sales print. US Covid-19 hedgers we forced to chase gold higher due to the US long weekend effect which was probably commensurately more bullish for gold than would otherwise be the case

But putting a broader spin on gold’s appeal beyond the current Covid-19 narrative, which will likely be a transitory event and might have a muted impact on central bank policy outside of Asia, I focus on Friday’s US retail sales data.

Listening to commentary surrounding the consumer, it always seems to be on the edge of doomsday even beyond the armageddon quacks on twitter. So, with investors very hypersensitive to any measurable negative US consumer data point regardless of how small, it’s likely going to drive an overreaction of sorts.

The three-month moving average of US core retail sales has been flat for two months now (0%), and negative for the two months before that. This suggests a trend loss in core consumption is a cause concern. And while Cherry-picked data points can back-up nearly any position, but the 3-month moving average detail is the primary driver of the US Treasury rally on Friday , and likely the catalyst behind the demand gold into the weekend, after all, virus transmission outside of Hubei is falling?

So far, the Fed has been sticking to its consumer-spending-driven growth narrative, so last week’s soft retail control figure introduces some doubt into that picture. While it is early in the quarter and retail sales are often revised, the next retail sales release on March 17 takes on added significance as it has the potential to impact the Fed’s current policy narrative.

While Gold appears to be stuck in no man’s land for now mired in the 1560-1590 range, with trading volumes somewhat depressed since the beginning of the year, but clearly, gold is still very much on everyone’s tracking systems. But if I saw no reason to chase it on Friday at 1575, I certainly don’t see a reason to pursue it now while arguing that it remains prudent to either wait for fresh catalysts and/or more attractive levels to reengage for short term trader. But for long term retails traders who should be averaging in with small clips, price sensitivity gives way to the steady trend higher. But when it comes to gold investing /trading, it’s all about your investment time horizon.

Given the expanse of the coronavirus in China, gold physical demand is likely to suffer while other regional gold hubs like Hong Kong, Singapore, and Bangkok, whose economies have been ravaged by the tourist impact, physical demand is also likely to hurt .So the current bullish impulse could be thwarted by the lack of physical demand

But a Fed Policy review screams buy gold

January 29 FOMC meeting (Wednesday) will be a focal point for gold traders —in particular, discussions around the Fed’s policy review. As Chair Powell noted in his post-meeting press conference, the FOMC unanimously agreed that the current stance of policy is appropriate as long as the data are broadly in line with their outlook. However, when queried about average inflation targeting, Powell suggested that under a different framework, it may lead to a different approach to policy.

Interest rate level differentials between the US and NIRP( EURO) economies remain quite extensive in a historical context, and these wide differentials continue to attract capital flows into US assets as is evident from persistent strength in the broad dollar.But gold institutional traders know the stronger USD is a problem for the FED who may unintentionally walk onto steadily thinner ice. Excessive dollar strength threatens to upend commodities and ultimately cause the Fed to miss inflation targets. Cutting rates will fiend of further dollar strength and will make target inflation more achievable.

In addition, given Chair Powell’s discussion of the coronavirus at the press conference, there very well may be information in the minutes about the Board staff’s insight into the economic impact of the virus.

The OIS market is currently pricing a 25% chance of a rate cut by the April FOMC Meeting and a 50% chance of a cut for the June meeting. With the coronavirus still a significant source of risk for the markets,but most investors believe market impact from the virus is still several months away and for the most part leaving other factors unchanged. The issue at hand for the Fed is that inflation is below target, and if it goes unchecked, dollar strength will make this worse.

But with bond and gold markets singing from the same song sheet, even if the Fed delays cutting rates and it could exacerbate downside risk for inflation, so absent a dovish pivot by the Fed ,the curve inversion could possibly intensify and will untimely drive gold prices higher. Thus in my view inversion is signaling mounting risks for lower inflation and inflation expectations, not imminent recession

But ultimately, it will take a more aggressive improvement in risk sentiment to chip away at long gold positioning. And with the Fed possibly moving to cut interest rates to defend their inflation targets, gold could be given bigger wings to fly.

Oil Market: will they or won’t they

Oil markets bounced around in relatively tight range on Friday as investors fretted about the Covid-19 demand devastation effect while receiving some encouragement that Saudi Arabia is rally OPEC and friends to reschedule and emergency meeting. Of course, lip service is more comfortable to deliver than actually to get Russia to sit at the table. Still, if prices fall more profoundly below $ 50.00 WTI, it will probably trigger a meeting, so there remains a psychological floor in place which markets have been bouncing off.

Into weeks end prices remain supported by speculation that the spread of the coronavirus has slowed and as the market continues to focus on advancing towards OPEC+ reaction to the Covid-19 linked demand slow-down, which was confirmed again in the IEA’s OMR that cut its projection for 2020 demand by 0.5Mbd with a cut to 1Q20 of 1.3Mbd.

But ultimately, it’s all about the waiting game as traders sit on their hands hoping for Russia to play ball before taking on more oil risk

However, as I was discussing with my network of oil traders over the weekend, OPEC+ is but a band-aid to stop the bleeding, not necessarily a bullish impulse unless they cut 1 million barrels of daily production out of the equation. Oil market needs China back online , which made for a good read of Bloomberg’s Chinese Refiners Go on Buying Spree as Oil Too Cheap to Ignore Friday article but should not be confused with a recovery in China crude demand as run rates remain depressed. But it’s much better to have Teapots buying rather than selling stockpiles.

Asia Economic Calendar

Twitter Follow

Finally, after 8 years, I’m starting to get more active on Twitter, where I’m sharing interbank views from an assortment of Top tier global banks, I’m in contact with, so follow me, and I will be sure to follow you back and drop me a message to say hello.


Weekly Twitter follower suggestions

One of the larger accounts I recently started to follow (which I seldom follow) is Tracy Alloway from Bloomberg. I’ve been interviewed by Tracy a number of times on Bloomberg TV, and she is just flat out smart witty and tinged with humor that makes for a good twitter follow.



Asia Open: The Schitts Creek Scenario




The Schitt’s Creek scenario

“Schitt’s Creek” is a Canadian TV comedy series about a wealthy video-store magnate Johnny Rose (Eugene Levy) and his family suddenly find themselves broke, and they are forced to leave their pampered lives to regroup in Schitt’s Creek. If you haven’t seen it give it a try

Stock Markets 

The US market is closed for Presidents Day, so in the absence of an unexpected headline shock action could be a bit muted as it typically is during a US holiday weekend

The growth over value theme continues to play out, and, as with the last few Fridays, there was little appetite to add to risk into the weekend.  still, the US market managed to post gains

The bad news is that on Sunday; authorities reported 2,009 new cases and 142 more deaths nationwide; the good news is, however, it represents a drop in new cases from the coronavirus outbreak for a third consecutive day.

This will be good news for the market to run with this morning and we should see the usually predictable unwinding of weekend defensive hedges out of the gates and the SPX should continue to plow higher on the “cleanest dirty shirt” argument for owning US assets, which is particularly salient at the moment given the likely asymmetric growth impact of the coronavirus shock. At present, the growth impact of the virus remains expected to be more severe in China (and hence in Germany) than in the US.

Fund flows continue to be supportive of the general risk-on theme. EPFR data showed $23.6bn flowed into fixed-income funds in the week ending Wednesday, the most significant inflow since 2001. I am surprised that fund flows into equities were not higher given the ongoing move. For now, equity markets remain in look through mode.

However, it’s not hard to be skeptical about just how much looking through investors will be willing to bare the cost of for the next few weeks, especially if China’s high-frequency data comes out worse than expected. Although, to be frank, I’m not really sure what to expect from the data, but if it comes out bad enough for confidence to plummet, investors could quickly find themselves up the creek ( Schitt’s Creek)without a paddle. Let’s face it, financial markets are not known for their rational thinking lately and given the 500 million or so mainlanders affected by the Covid19 quarantine, and it’s also not hard to come up with more downside risks than upside ones right now.

This is a tricky market environment. There isn’t intemperate fear, and there isn’t unreasonable optimism. The easy trades of reverting overextended markets are gone, which has turned traders very wary of taking on big wagers. While the virus stories don’t carry the same headline gravitas, it’s still a focal point while the economic data fears continue to simmer on the back burner. It will soon be the fear of the data unknowns’ that will keep investors awake at night. But that has not stopped the market frustrating the bears in the past and now feels no different. Depressing the returns available through the duration in risk-free government bonds creates incentives for investors to re-allocate capital to stocks even more so into the resilient US markets.

Oil markets

The oil price action continues to be swayed backward and forwards by news flow around the Covid-19 infection/death rates and the prospects of OPEC+ agreeing a quota cut to balance off the demand slowdown. However, with a reality check about to set in when the China high-frequency data start to roll in, and in the absence of the Russian compliance commitment, any excuse to sell still feels like the sentiment in the market right now. And while the worst is probably priced into the China equation, the convexity of global economic data to how much of the China economy comes back on-line should not be underestimated, especially with a reported 500 million Chinese lives touched by the quarantine. That over 1.5 times the US population!!

On Friday, oil market investors took solace after the US energy secretary noted only “slight reductions in production” from the coronavirus and that the agency is “not yet concerned about its ultimate impact. “After markets closed, the office of the US Trade Representative announced it would lift tariffs on aircraft imports from the EU, from 10 to 15% effective March 18, though it stopped short of raising higher tariffs on other goods.

Gold Markets

There’s more to the recent gold move that meets the eye. While retail sentiment seems to be now moving purely on the end of coronavirus headlines, long term strategic buyers are starting to take notice of a soft underlying read for US retail sales. The headline for January was in line, but the bit that matters for GDP – retail control – was weaker, recording a flat outturn against expectations of a 0.3%mom rise and with a sizeable downward revision for December. The recent trend has been weak: 3m annualized is only up 0.22% and the 6m annualized is down -0.12%, only the second negative reading since the GFC (the other was during the collapse in December 2018).While it is early in the quarter and retail sales are often revised, the next retail sales release on March 17 takes on added significance as it has the potential to impact the Fed’s current policy narrative.

And while analyst has been focusing on ASEAN central bank policy measures. It’s the Fed who is now wearing the yellow jersey in the rate cut peloton as there are far more cuts priced for the Fed than the other central banks. From the time coronavirus cases started to pick up in mid-January, the Fed went from being middle of the pack to now leading the pack at 36bp of cuts being priced. This is a bullish swing in the gold narrative

Also, the convexity of global economic data to how much of the China economy comes back on-line should not be underestimated, especially with a reported 500 million Chinese impacted by the quarantine.

With the US stock markets trading at record highs, and downside risks outnumbering upside one’s by a count of 2:1 according to my watch list. It’s not hard to figure out why Gold markets are bid.

With bond yields falling on coronavirus concerns and as the effects of existing tariffs make there way through the US economy .But when factoring in geopolitical tensions such as the recent standoff between the United States and Iran, a potential technological divergence between Washington and Beijing, and the possibility of a U.S.-EU trade war, gold should be on everyone’s radar

Stock market liquidity?

Liquidity on driving equity? That’s not what the chart below shows. The Fed’s balance sheet is pretty much unchanged so far this year and shrank over the latter stages of January. Same for reserves balances. Yes, both rose steeply in Q4 last year, but they haven’t made further progress this year.

Well, the markets will soon get to test the liquidity theory as The New York Fed reported it would lower its 14-day repo offerings by $5 bn, down to $25 bn through March 3, and then down to $20 bn from March 3 onward. The overnights will drop $20 bn to $100 bn maximum. On Thursday, the Fed provided $30 bn in 14d and $48.85 bn in overnight.

Still, its bill purchases hold at $60 bn/month, so perhaps the idea is to get back to a more conventional balance sheet management sooner rather than later.

Currency Markets

Asia FX

Mainland authorities have leaned mostly on targeted measures like individual re-lending facilities, with the macro policy response more fiscal (additional pre-financing quota for local governments) than monetary (net OMO injection of the only 140bn in the last two weeks), and USDCNY fix mostly been in line with the model, after the initial lowballing adjustment post-LNY. With RMB1.2tn of OMOs maturing early next week, the focus will be on whether PBoC rolls them using MLF, and at a cheaper price point (ahead of LPR reset on the 20th). The emphasis in rest of the region is on Singapore Budget (18th), Bank Indonesia MPC (20th), and BOK (27th)

Even although coronavirus risk premia are reducing and vols are taming there a gigantic swath of economic carnage left in Covid-19 wake so even with Hubei province not reporting fewer infections from the day before, its full steam ahead for the region’s economic stimulus plans

If the past week is any indication, investors are will be looking for a buying Asia FX opportunity but could remain cautious about adding more currency risk before assessing the depth of the economic fallout. But with regional policymakers taking protractive actionable measures to thwart of the legacy effects of Covid-19, this should be viewed as growth positive. But the market appears to lack a catalyst for a real trend, and I expect consolidation to continue until bluer skies look likely.

The Yuan

USDCNH slipped from the high of 6.9917 and traded at 6.9830-80 last Friday Asia morning but back up again in the NY time zone. There was no demand for long USD gamma, however. Instead with the curve pointing south implying that traders seemed to have priced in a potential RRR cut Friday, so when it didn’t come, forward points reverse higher and dragged spot along for the ride. The drop in the daily virus headcount is a positive for regional risk as the curve now refocuses on PBoC policy measures which should be bullish for the Yuan

The Ringgit

For the Ringgit, which is a mid-level carry currency, it very much relies on a pickup in growth expectations to recover sustainably. And with another rate cut looks largely priced into swap markets and out to 10Y on the bond curve and with 10Y MGS trading this week with yields through 3.0% to all-time lows, it might be up to equity flows to do much of the heavy lifting this week as perhaps offshore blond flows could turn more neutral from here after significant inflows in the past three months. Look for the Ringgit to take it’s lead from the Yuan today

The Thai Baht

The USDTHB continues to hold well above the 31.00 level as currency trader to a tee the negative tail to the Covid-19 outbreak is best expressed at this stage via being long USD vs. THB.

Singapore Dollar 

FX and rates curves in Singapore are mostly already pricing in a shift by MAS to neutral. While the reduction in new flu cases, ex-Hubei has already helped Asian FX consolidate. But if the response to SARS were any indication, it might take a ‘positive announcement shock’ like a lifting of the travel ban to get the Singapore dollar moving in the other direction.

G-10 Currency markets

The Yen

Why isn’t the Yen working? Don’t even get me going? Besides the fact, Covid -19 poses a significant near-term downside risk to Japan’s economy, negative rates, and a magnetic attraction to the 110 level have made it an expensive proposition to purchase in a panic and then sit on.

The Euro 

Any concerns about your short Euro position? You bet. Besides President Trump’s twitter feed set to exposed if the EURUSD breaches 108, the ECB’s strategic review has a hawkish bias, particularly given the current euro weakness. I think this supports the euro if this is the case G10 traders will take their cue for the rates markets as this should create a measurable bounce in near term EU interest rate yields. Still given the dismal economic outlook in Germany, given my current view, look to sell on rallies to the 1.09 handle, not before. While downside optionality volumes are exploding, cash remains a bit neutral at this point suggesting the market looks to well-positioned for a downside move, and in this low vol environment short term positioning looks a bit extreme at the moment

The Australian Dollar

The Aussie, which continues to trade super beta to China risk is punching higher this morning on improving regional risk sentiment as China reported a drop in new cases from the coronavirus outbreak for a third consecutive day.


Market Resilience Reigns Supreme

Market resilience to coronavirus developments has been tested over the past 24 hours as reported cases of the virus in Hubei spiked almost 50% after the provincial government there began counting cases confirmed by imaging scans in addition to the existing test kit methodology. Even with that, the market impact was little more than a pause in the general bullish upward trend rather than risk-off.

The critical question today will be whether the near 10-fold spike in new virus cases reported yesterday proves to be a one-off. And while there remain some concerns about Chinas transparency with regards to the methodology for counting people with infections. But there is ample evidence to calm markets that the jump is merely a fossil of the reporting — not a sign that the outbreak is spreading faster or farther. All of this suggests that the market base case remains unchanged that the Covid-19 will be primarily contained by end-March, though occasional outbreaks may continue to be reported in April.

And confirming the market recovery Oil prices, which are a crucial bellwether for Covid-19 investor risk sentimentalso managed to lift 0.5% despite the International Energy Agency suggesting oil demand is likely to grow at the weakest pace since 2011 this year due to the coronavirus. Indeed, the IEA expects to see an outright decline in demand in Q1-20, the first “in more than ten years”.

US jobless claims fell more than expected. And given this high-frequency data series is one of the best real-time indicators of recessionary pressure, the key here is the data is not sending any worrying signals about the health of the US economy and labor market.

Markets have shrugged off a surge in the number of coronavirus cases in Hubei, and investors are back in stock buying frame of mind. It seems there’s a definite thematic playing out. Coronavirus has caused investors to be underweight, or at least not get involved in this rally. But low rates are keeping the juice in the market led by defensives, and the harmful data that is expected is now so well-flagged that it has become irrelevant.

Sure, there’s a lot of “hee and haw” that leadership is very defensive and narrow around US tech. But countering this closed-minded view is that earnings have been hitting expectations across the board; US data remains exceptional, so there is a strong rationale to stay long beyond the easy money argument.

Oil markets

Oil put in a positive performance for the day, reinforcing the view that oil markets have already priced in much of the coronavirus-driven lousy news. Barring an acceleration of new infections, the markets should remain relatively supported until we get the “first look data” surrounding supply chains and demand contraction knock-on effect in China as a result of the virus transmission

But keeping the lid on prices, OPEC had hoped to announce additional production cuts of 600,000 BPD. Still, with Russia’s refusal to participate, no action is anticipated before OPEC’s next meeting in March. And of course, the stream of gloomy revised demand outlook by key market monitoring agencies does little to help the oil markets bullish cause.

Gold Markets

Gold benefitted from a resurgence in investor risk aversion. The catalyst remains COVID-19 headlines.

Although gold rallied on fresh COVID-19 concerns, risk appetite lately tends to rebound quickly. So, unless there is new negative news to prompt a renewed deterioration in risk-on equity demand, this could limit gold’s top side ambitions.

For now, policymakers have been content to cite the downside risks to growth from COVID-19, but have argued it is too early to say what the scale of the impact might be and is not providing enough dovish impulse to push gold to the vital $1600 /oz, But the strong USD and a distinct air that risk-on investor sentiment will increase are enough to put a cap on gold.

Investors’ sanguine reaction to the economic fallout from the coronavirus will be tested in the coming weeks. If the economic data comes out weaker than expected, you will be happy to have included gold as a quality asset class in your portfolio. In these uncertain times, gold should remain prime quality asset purchases as a hedge against a stock market correction.

Currency Markets

USD Dollar 

US Retail Sales is going to be essential for the FX market, and while intraday ranges have been relatively tight, they could even be narrower today as the market might sit on their hands. But if there a trade to be had, it could be through short-term tactical plays vs. a weaker Retail sales print. Although I don’t have an absolute reason to fade the core number +0.3%, some may view the estimated headline print a bit optimistic, given global growth uncreates. But one thing that I have learned after decades in the FX game is never to speculate against the resilience of the US consumer even through hell or high water.

Asia FX

The relatively indifferent FX reaction to the Hubei news suggests that investors continue to continue to look through the economic impact.

The USD has been enduringly bid d, although FX vols are only slightly higher. The downtrend in USDCNH since September 2019 remains intact, 12-month forward points narrowed further, and an ongoing sell-off in risk reversals over the past week suggests a more limited demand for protection against a CNH sell-off as the PBoC is offering up a convincing backstop.

Overall the somewhat muted reaction may be attributable to the fact that the number of new cases outside China has failed to rise. However, investors’ sanguine response to the economic fallout from the coronavirus will be tested in the coming weeks, so at this stage of the game, Asia FX investors don’t want to run to far ahead of the economic realities. Hence, they remain cautious about adding more currency risk before assessing the depth of the economic fallout.

There are three main channels for this fallout. 

One is the tourism channel. The impact is easily quantifiable, and the initial reaction of the markets has been most punitive for the more vulnerable economies on this metric – THB and SGD. What’s harder to assess is the damage via the other two channels – supply chains and demand contraction, and for this, we need to see the empirical data. For that impulse, the release of Korea 20-day exports (Feb 21) is essential.

The Malaysian Ringgit 

The US equity markets are getting encouraged by easy money around the Fed repo remedies, and the S&P 500 bounces as not driven by growth rebound. Hence, without an impressive rebound in China data and or global growth, there is no positive risk knock-on effect from US markets as Asia currencies remain out of favor given the gloomy local economic outlook. Eventually, buying into a post-coronavirus manufacturing rebound will make sense. Still, it’s a bit early to start front running that trade versus the strong USD, so the Ringgit continues to trade defensively.

G-10 Currency 

The Euro 

Investors continue to ‘look through’ the economic impact of coronavirus, ostensibly driving EUR weakness via long carry positions.

But if the recent EURUSD weakness reflects downside risks to global growth from China, rather than a hunt for carry, then the EM currencies which have held up well so far could weaken abruptly if China data comes out worse than expected. For EURUSD itself, global growth concerns could overwhelm any short-covering of long EM carry positions. That, in turn, could drive further weakness in EURUSD and return EURUSD-ADXY correlations to pre-summer 2019 levels.

Again, it’s the “lose-lose” situation for the Euro that we suggested at the start of the year.

The Pound 

Following news of UK Finance Minister Sajid Javid’s resignation, as reported by The Sun newspaper, judging by press reports, it would seem that the UK prime minister wants complete integration of Downing Street and the Treasury.

The pound is rallying as closer integration between “No 10, “and the Treasury would almost certainly mean a loosening of fiscal rules and higher budgetary spending than under Sajid Javid.


Ho Hum, Another Day Another Stock Market High Water Mark. US Markets Close At Record Highs As Coronavirus Fear Ebb.

Revised market open 

China Hubei Coronavirus update Feb 12th: 14,840 additional cases (under revised standards) v 1,638 prior; Daily death toll 242 v 94 prior

Revised standards have started to include cases diagnosed under new method – Notes it started involving cases diagnosed with the new process among confirmed cases from Thursday (Feb 13th) –

This certainly doesn’t sound good, and if I’m reading this headline correctly as on the first glean, there could be a severe case under-reporting going on.

Stay calm and buy the dip?

The Hubei Coronavirus update headline has initially hit like a ton of bricks given this is one of the market’s biggest fears.

So, traders have jumped into sell first, ask questions later mode. But is it time to stay calm and buy the dip?

The headline on the sharp jump in Covvid-19 cases looks gnarly on the surface. Still, it is essential to note that in Hubei, the epicenter of the outbreak, there has been a severe shortage of testing kits reported over the past few weeks. Many people who had symptoms (and even positive affirmation of things like pneumonia) were unable to be confirmed as virus carriers due to the testing kit shortage, and some were sent home to self-quarantine. The government made a push this weekend to clear the backlog of tests, and this big jump in confirmed cases could be a result of this.

And while there could be a knock-on effect where the Rest of China has been under-reporting. Still, I don’t think its a threat to the virus cluster beyond Hubei at this stage as other countries are certainly adhering to strict reporting protocol, and the cluster effect outside of China is receding.

On a more market-friendly note, the PBoC will continue to intervene perhaps now even more aggressively either with RRR or deeper interest rate cuts.

But Asia market rather than a global market and of course, demand sensitive to China commodities like Oil will be more re prone to the sell-off. Still, for ASEAN currency risk, its unlikely to weaken off to significantly as Yuan is doubtful to weaken through 7.0 USDCNH given the PBoC policy backstop.

Ho Hum, another day another stock market high water mark.US markets close at record highs as coronavirus fear ebb.

US equities post another day of gains WednesdayS&P500 up 0.5% heading into the close, US 10-year treasury yields rose 3bps to 1.63% and the 2s5s curve – which inverted earlier in the week – has turned positive again. Asia equity futures are trading in the green pre cash market open with the China proxies looking to open up well, while oil lifted 2.6%

Investors’ sentiment was boosted by the fact that China reported the lowest number of new virus cases since the end of January, while a senior medical adviser suggested the outbreak could be over by April.

Central bankers continue to remind that it is too early to gauge the economic impact from the virus fully; the RBNZ and Riksbank the latest to acknowledge downside risks. Still, the market looks increasingly willing to look through virus headlines. And with market flush with cash providing the juice in the market and given the negative data impact is so well flagged, in no small degree the growth downgrades have become somewhat irrelevant.

With risk positive momentum building and stocks and commodities both singing from the same song page, it appears the markets are finally letting go of the coronavirus fears.

Although “The Street” is downgrading growth forecasts, for now, the market has decided enough is enough. And the source of funds for the latest asset price move is the PBoC policy bazooka bolstering Asia sentiment the Fed’s repo remedies which have left banks awash with cash.

The coronavirus impact is probably just a near term demand shock that has been mitigated by central bank liquidity. Still, given that stocks are purely a momentum story at the moment, investors have little choice but to get on board or risk getting left at the station.

S&P 500 3400 level sure sounds like a beautiful Valentine’s day gift, especially if you own equities.

Oil markets

Oil is up as OPEC awaits an official response from Russia regarding proposed production cuts. This despite a hefty inventory build reported by the EIA.

Oil markets posted its most significant daily gain in six-week after reports of coronavirus cases in mainland China appear to be leveling off, according to the latest data from the Johns Hopkins Centre For Systems Science and Engineering.

So, despite the sizeable inventory swell, the EIA report fell through the cracks given the mounting evidence the coronavirus transmission is slowing. At the same time, oil demand sentiment is getting further boosted by stories that Foxconn hopes to resume 50% of its production in China by the end of the month and be at 80% capacity by the end of March.

But not wanting to sound like a killjoy, the markets have a sizeable glut to deal with, and the EIA report did little to alleviate those oversupplied concerns, bringing market attention full circle back to the elephant in the room, Russia agreeing to the JTC production compliance.

But Russia may find it easier to stomach temporary production cuts given relief is just around. And their market share won’t necessarily be compromised by US production, which would also be less willing to absorb the start-up cost to ramp up production immediately Which could be hugely bullish for oil markets

But clearly, the big story for prompt oil concerns is coronavirus fears are lifting as the virus transmission eases and which should send more shorts running for cover, While those shorts that remain at the risk-on party won’t be dancing to far from the exits as China demand could return with a vengeance.

Gold markets

Gold demand was tempered by the strong US dollar and rising risk appetite and while the underlying support remains there, but the upside looks limited over the near term.

Gold has been range-bound of late but supported given the headwinds it faces. Two factors continue to offer support One is that global monetary policy remains soft, and interest rates are low. The other is that geopolitical risks beyond the coronavirus are bullish. But with ETFs, and Comex net long positions high and if anything, a little bit stretched. When flagged against a firm USD, stock market gains, and the bounce higher in US bond yields, it suggests fast money traders who have been driving the bulk of action these days would probably be more inclined to trade gold from the short side limiting gains.

Chair Powell’s comments to the congress were bullish for gold longer-term but neutral in the immediate to short term. Without an immediate dovish Fed impulse, there is limited upside for gold currently, but the US election cycle risk should support gold. The race now moves to Nevada with a caucus on 22 February with an essential debate before that on 19 February, but it is still unclear if Michael Bloomberg, who would pose a real threat to Trump, will meet the polling criteria to make it to the debate stage.

Asia FX

The Yuan 

The PBoC continues to stabilize the markets has limited RMB weakness via fixing USD/CNY lower than the market’s expectation while introducing various countercyclical measures to encourage portfolio inflows. As the market gradually pivots out of the virus haze and begins to see some light at the end of the tunnel and coupled with the mainland macro measures designed to ramp up production, Asia FX traders could start to front-run the China rebound trade more aggressively.

According to Deutsche Bank MTD, net equity inflows are at ~$2bn, slightly more than in January and well above the 2019 average, while bond flows in January showed ~ $2.1bn of inflows.

So, if the PBoC continues to limit RMB weakness, and with Bond market rallying, portfolio inflows should continue to remain active, especially given the ongoing bond index inclusion, such as to the GBI-EM, which will include China starting from the 28 February. Hence the healthy Hedge Fund appetite for all things RMB.

The Ringgit

While the Ringgit weakened on the worse than expected GDP print, which then brought forward rate cut prediction. Improving regional risk sentiment as coronavirus cases in mainland China appears to be leveling off, and rising oil prices should provide some immediate support for the Ringgit.

The Tourism basket

While the Thai Bhat has recovered from the peak coronavirus fear levels, the Singapore dollar continues to struggle for traction. But unlike regional currencies like the MYR that should benefit from the local rebound trade on the back of China pent up production demand coming back online. There has been a sizable chunk of tourism revenue in Thailand that has been lost, and you can’t replace that. So, any further gains in the THB might not be so immediately forthcoming, given that it’s impossible to make up that lost revenue. Still, the Thai market is in a much better place than it was only 48 hours ago.

Secondary virus cluster fears continue to weigh on Singapore, so traders remain very defensive knowing the MAS could eventually cut interest rates to support the flagging Singapore economy.

G-10 Currencies

The Japanese Yen

The main G10 flow over the past 24 hours has been USDJPY, with the pair back above the 110 handles as risk continues to trade well supported. And with risk sentiment well supported as virus fears turn benign, it seems pointless to fight it. While +110 has proven to tricky level to go long recently, gains could be a bit of a grind today unless the stock market momentum takes a run at the S&P 500 3400 levels.

The Euro

In EURUSD, the constant supply over the past 24 hours taking its toll. The pair is trading below Tuesday’s lows, but still holding just below the October lows, at least for now. And now with the Euro as the go-to currency trade funder via EM FX kicking in, offers will likely remain thick over the near term. The markets at a critical level, so the next move could be key.

Canadian Dollar 

More positive signs for the Loonie is that more topside strikes north of 1.3500 is getting offered through the brokers as the spot price weakens, given the recovery in oil prices.


Bubbles do Funny Things To Bank Traders.

US equities were a touch stronger Tuesday but trading well off intraday peaks with S&P500 up 0.1% heading towards the close. US treasury yields rose, — ten-years up 2bps to 1.59%. With gains in European equities and most of Asia as well, the market looks increasingly willing to look through concerns about coronavirus, newly named Covid-19 overnight by the WHO. In his Congressional testimony, Fed Chair Powell noted the Fed is “closely monitoring the emergence of the coronavirus, which could lead to disruptions in China that spill over to the rest of the global economy.” However, it was too early to make a full assessment. BoE Governor Mark Carney was similarly cautious but noted the virus had not led to any tightening of financial conditions for UK banks.

But it could be the degree to which investors are willing to look past weak China high-frequency data in the coming weeks will that help determine whether the risk rally has the legs to run.

I was relieved this morning to see the markets hadn’t gone stark raving bonkers and taken the S&P 500 closer to 3400. However, risk parity bubbles do funny things to bank traders who appear to be borrowing a page out of George Soros playbook “when I see a bubble forming; I rush in to buy it. “Six weeks into 2020 and already the S&P 500 has hit the mean of strategists forecasts for the year-end of 3355 points. On a further 7% gain, the SPX will be above the most bullish of all predictions recorded by Bloomberg of 3600.

But the markets are probably not quite as risk-on as the record-setting pace might suggest. Growth or defensive stocks have outperformed value by 25% so far this year. Equities are indeed reigning supreme, but it’s driven by the mega-momentum stocks (tech) rather than the economically-sensitive cyclical stocks. Suggesting that even if the consensus view for a sharp “V” economic reaction to coronavirus is wrong and the recovery period takes on a hockey stick shape, institution equity ownership is still pretty cautious by design. So provided the Federal Reserve has the markets back, the bulk of US stock market positioning should remain relatively immune to the current market worries at this stage. So, if you’re looking for a contrarian storyline, you might want to skip the next few paragraphs.

There is quite a bit of ink being spilled to say that markets are not taking nCoV seriously. But with 10-year yields falling to sub-1.6% and the Fed hinting that its reaction function includes Covid-19 and the PBoC already flooding markets awash with cash, papers over that cautious scenario. Such easy financial conditions with the potential for even more comfortable conditions as global central banks dovish reaction function to a temporary global growth shock has investors champing at the bit.

Why are equities up and bonds up too? 

The S&P 500, the Nasdaq, and the Dow Jones Industrial Average are all trading around record highs while the 10-year US Treasuries yield is at 1.58%, from 1.9% at the start of the year. For that, everyone can blame the central banks, who have succeeded in dampening volatility by guiding markets successfully in the direction they want them to go.

The US Federal Reserve, in its bid to avoid another repo market meltdown reminiscent of September 2019, had probably overflooded things when it injected billions of dollars of cash into the system to push rates lower. This monetary policy overcooked state of things left banks with heaps of money, which they are putting to work buying bonds. And as such, equities, particularly growth stocks, are reveling in the afterglow of the Fed easy money have only been able to gain “because” Treasury yields are low.

And with everyone thinking the Fed is either on hold or cutting with a rate hike a long way off as such traders continue to look for optimal bullish risk-reward and continue to shrug off the likely economic impact of the Covid-19.

Are things stretched too far? 

Possibly but at this time, there is absolutely no stopping equity market momentum. So far this year, investors have shrugged off patchy earnings, increased tensions between the US and Iran, and the nCoV outbreak. There isn’t much else you can throw at them right now. With that in mind, it seems pretty lame to think the outcome of the Democratic presidential primary is going to have much impact. Perhaps the biggest threat to the market is the consensus view that the effect of the coronavirus will be a V-shaped recovery.

Oil markets

With OPEC and friends paralyzed thanks to Russia DEC CL 20 vs. 21 in contango BrentWTI <$4 suggesting globalized Covid-19 effect runs deep. Any thought to what breaks this daily descending channel??

Although prices bounced back from a one-year low, the thought that OPEC could sit on their hands until March has brought the bears back out on mass. OPEC + failure for now to follow the Joint technical Committee’s recommendation to cut an additional 600kb/d of production has allowed sentiment to turn cumulatively more negative.

The anticipation of an early February emergency meeting of the OPEC+ group had supported oil prices. Still, a near term meeting seems to be a view supported on little more than a wing and a prayer at this stage. And now, it appears OPEC wants to quantify the demand implication before acting. Still, with the cartel failing to act swiftly on the JTC recommendation, this has allowed the narrative to fester and create divisions within the group.

But surely, it’s tough for OPEC and Russia to ignore the forward curve that continues to move deeper into contango. And traders probably wouldn’t be surprised to see an emergency meeting called if WTI moves much lower.

We’re at a significant inflection point for the Oil markets. If China fails to contain the virus domestically within a few weeks and or virus clusters expand around the globe, it’s a whole new kettle of fish as tail risks get incredibly fatter for oil markets.

Gold markets

There has been very little interest in gold in the past few days as the stronger USD continues to sap gold momentum, plus the bulk of buying on the back of virus fears went through early last week.

With the majority of hedge positions in place, as nCoV risk turns benign and investors continue to shrug off the economic impacts from Covid-19, gold speculators and fast money accounts will generally start to trade the ranges in gold from the short side — effectively keeping a lid on price action which then ultimately triggers some profit-taking from weaker gold longs.

With markets awash with cash, the fear of creating an equity market asset bubble alone should keep the Fed parked on the sidelines, not necessarily bullish for gold. But instead, it’s US fiscal policy, which remains long term price friendly.

So far, global financial markets have soaked up the growth in US debt. The yield on the critical 10-year has stayed well below 2% and is close to 1.5%. Interest repayments, as a share of GDP, are only half the level of the early 1990s, which puts less pressure on government coffers. That is despite the growth in debt. But this is a knock-on effect of investors’ demand for safe assets, which include gold.

While Fed policy certainty is probably lessening the demand for gold, but should investors’ appetite for US debt start to fade, gold is likely to be one of the few beneficiaries as investors seek gold as quality assets. This may not happen any time soon, but it’s a good enough reason to hold gold as a prime quality asset in your portfolio.

In the meantime, look for gold to trade in the well-trodden territory as a stack of quality assets like US bond and the dollar battle it out for your safe-haven flows.

Currency markets

I get it that we’re a bit more cautious in Asia, especially given that we are closer to the epicenter of all the Covid-19 fears. Still, should Asia traders be 250 pips overly cautions given the broader collapse in USD-Asia (USDCNH) that transpired after handing the book over to London yesterday?

Still, I think running Asia currency risk based on global stock market performance, which is absent a bump in economic Asia sensitive cyclical stocks, doesn’t appear to make much sense given that local currency tail risk remains pretty fat. And while it makes sense to unwind some overextended long Asia weekend gamma hedges (or in my case getting stopped out on long USDCNH hedges at breakeven) given the typically robust convexity of regional currency sentiment to PBoC stimulus. However, views are immaterial to what price action suggests, and that is what we should trade on, not opinions.

Singapore dollar

Could the Sing dollar be the regional voice of reason as, despite the overnight collapse in the broader USD-Asia complex, the USDSGD remains bid around 1.3870 on local support?

Today Asia FX view 

As we enter the land of currency confusion, Asia FX markets continue to beat to a familiar drum. USDAsia remains better offered on the back of improved risk sentiment. This seems to be taking hold as hopes build that China will soon reopen for business, the Zhong Nanshan scenario holds, and as the PBoC policy guides us to risk parity nirvana. Time will tell if that view is correct.

As for G-10

Forty-eight hours is the typical duration for G-10 trends these days. When it comes to painting a dominant currency view, it feels that I’m confined to an empty windswept desert. Forget trend following, home run swings or break out trades, these types of market reward patience where bunts singles, doubles and mean reversion remain the trade calls of the day. I defer to my FX reversion algorithm, which doesn’t need a currency view for a trade of the day.


China Tariff Cut Was The Eureka Moment But It’s a pre-NFP Friday And The Situation In Hubei Still Looks Challenging


It was another good day for global equities, which saw the S&P500 up 0.2% to notch a fresh record high. European stocks again saw similar gains. US 10-year treasury yields slipped 1bp to 1.64%. The eureka moment came on the back of China’s pledged tariff cuts, which has captured the imagination of analysts and bullish investors alike. And with indications that the coronavirus outbreak is plateauing outside of China, it too provided an open invitation to strap on risk as investors appear increasingly prepared to shrug off concerns about the viruses enduring impact on growth.

Provided the US reciprocates the Chinese tariff cut with one of its own, the trade calm will be viewed in a very trade-friendly light and well beyond the immediate fiscal benefits. The sweetener is a fantastic pacesetter for Phase 2 of the trade negotiations. Still, the frontrunning commitment is also very reassuring after the legacy of delays to Phase One while also eases some coronavirus growth concerns.

Why market could pare risk today

Beyond the usual pre NFP moves which typically sees traders jockeying for a position amid their regular Friday housekeeping duties

While the outbreak appears to be stabilizing outside Hubei Province, but the situation in Wuhan and Hubei may still be challenging, and the disruption to China’s economy will likely continue in the short term. This may give cause for pause or at minimum investors coming up for air as the street feels a wee bit long after aggressively front running both the reflation and Wuhan transitory trade this week.

And the possible equity market correction when the full economic impact of the virus is realized in the next series of ASEAN data releases is supporting the gold market diversification hedge.

Outlook for next week

With the thought that global central banks are more than willing to cover the markets back, the extent to which investors look through” weak China data in the coming weeks will help determine whether this week’s risk rally has the legs to run.

Remember, its an election year, and a timely roll back in a chunk of US tariffs could trigger a move in the S&P500 to 3500 all but assuring a Trump victory.

Gold markets

Gold suffered quite a capitulation this week, yet demand endures.

  • The gold seasonality effect is ebbing.
  •  The Wuhan shock and awe fear are receding.
  •  US exceptionalism inflows are punching both SPX and USD tickets higher.
  • US 10-year yields have begun to move off their post-coronavirus lows, and less easing is being priced in, yet gold endures.

Why is gold so strong? Wednesday’s strong ADP payroll result has put the USD back atop the king of the hill, and the US currency looks firm. Equities have been surging, with new highs hit in the US and European markets, and bond yields have been nudging higher. All this implies lower gold prices. Not to mention weak EM physical demand, where the bulk of the world’s gold bullion is purchased. Yet gold still remains firm.

Ultimately in this Risk on Risk off (RoRo) environment, gold is perceived as a fantastic asset to hold if equities correct. Investors do not have, in many cases, better alternatives with the bulk of government bond yields globally are still negatively yielding. So, gold remains bought for portfolio diversification and as a quality asset, which seems to have room to outperform other safe havens regardless of whether risk sentiment deteriorates further given its strong inverse correlation to lower short term interest rates.

In short, gold offers an excellent hedge with the market possible, returning its focus to US-China trade headlines while US election risk comes into focus.

Oil markets

PEC+ technical meeting results in a recommendation for a 600kb/d production cut. This will need to be discussed at a ministerial meeting at a date that has yet to be agreed upon. This cut would be above the low end of the range recently mentioned in press reports, but well below the high end (1mb/d+), and price action is enough to tell you the market is disappointed

But the bigger fly in the ointment is Russia as the remain a reluctant cutter given their breakeven are much lower, so we’re starting to see the U-turn in prices I alluded to yesterday if Russia doesn’t play ball. Still, we’ve seen this all before, and at this time, there is little reason for the market to suspect Russia will break from the usual pattern of flip-flopping until the last minute but ultimately agreeing to cut.

Regardless of Russia’s motivations, the 600kb/d may only provide little more than a band-aid on a broken leg as more oil price downgrades are expected to come down the pipe due to ruinous demand effect the virus is having on Chinese consumption. For instance, the more pronounced the virus effect is on China, the more significant the oil demand devastation as estimates are now getting nudged higher to 3.2Mbd + (~25% of China demand and ~3% of the global market) amid the extended period of industrial and consumption gridlock in the Chinese economy.

But with the market preparing for (black) swan dive, its critical that OPEC + compliance comes through to put a floor on oil prices.

Currency markets

Asia FX

To the extent that currency traders are willing to front-run both the global reflation and Wuhan transitory trade in the absence of quantifiable economic data will dictate the pace of play in Asia FX.

The Ringgit is trading to the top end of my weekly range. Possibly due to  Malaysia’s export sensitivity to a weaker China economy, and now with local traders are adjusting risk tolerances for a possible BNM proactive interest rate cut, we could see a bit more weakness into the weekend. Indeed, this could be a case of short-term pain long term gain, but look for 4.15 to hold; however, as bond inflows should pick up with a rate cut in the offing.

With a litany of ASEAN central bank cutting interest in the face of weaker economic growth, ASIA China sensitive FX may not be the best place to hold currency balances with the US dollar holding firm. Let alone leveraged foreign exchange risk over the short term, given the market risk on risk-off (RoRo) proclivities around the key bellwether USDCNH.

While the Wuhan rebound trade could be a home run this year, traders may feel more comfortable getting the widely expected doomy China’s high-frequency data and regional export numbers, which are going to be weak, out of the way before entering the rebound trade.

Currencies that are most sensitive to the China/Asia growth cycle and commodity demand took a hit during this growth scare. The Won and Aud stand out the most. While currencies with high real yields have performed surprising well like the IDR, as the Indonesian bond market remains extremely attractive for real money investors


The Eur continues to languish through the Risk on-risk off RoRo cycle. There is no haven appetite as Europe has the developed world’s lowest real yields. But when risk appetite turns on, because of those low yields, the Euro becomes the world’s best funder as everyone short trades the Euro to fund those EM carry trades. It’s a continuous cycle of ” lose-lose ” for the Euro in a “RoRo” environment.


Asia Open:The PBoC Policy Bazookas


Global markets have advanced on the back of the better tone from yesterday’s Asian session. The main staging post was unquestionably the Chinese equities that managed to claw back some of Monday’s steep losses. The CSI 300 finished the day up 2.64% after a 7.88% drop. Other Asian markets, however, weren’t initially so passionate. Still, in the absence of hard data to quantifiably guide risk, the diminishing fear factor around the virus, along with the PBoC policy bazooka, has boosted sentiment.

In turn, there has been a significant bounce in Chinese equity ETFs overnight. The FTSE China A50 (XUA) is leading the charge, which makes sense if you believe the   FT article about a so-called “national team.” Who are saddled up and ready to defend the PBoC’s equivalent of Maginot line? (I hope that analogy resonates on some level) And clearly, the broader markets believe these proxies offer a better steer as its been a great day in the macro markets with a multitude of crossovers (SPX & USDJPY) ripping higher.

Just as has been seen in stocks, the virus panic is starting to come out of bonds. But if your holding bonds amid this disinflationary shock of the coronavirus in the pipeline, you may want to take heed. The coming deluge of stimulus could have an astonishingly inflationary impact.

I’m probably the market’s worst stock picker, but I’m always quick to own up to my mistakes. And while I have been quick to suggest of late, that the US equity market doesn’t provide the best pilot for risk, that view is entirely wrong. With the falls in the commodity market clouding my better judgment and pushing the markets fear index through the roof, the SPX has been unyielding in its propensity to consume virtually everything the market can throw at it, including the kitchen sink. If war, the mutant black plague, or even with half of China going underground hasn’t knocked the S&P 500 off its high-horse, I’m not sure anything will.

There has to be some particular reason beyond tarot card readings why the market is on the ups, and while the economic impact is starting to surface, there is still a lot of number crunching to be had.

However, here is what I’m thinking based on a less fuzzy look through the Wuhan virus lens,

1) The coronavirus outbreak appears to be slowing outside the Hubei Province.

2) The PBoC policy responses are lining up

3) expect more fiscal measures to follow

4)the WHO falling short of labeling the Coronavirus outbreak a pandemic. Instead, WHO sees an epidemic with multiple locations, with cases outside of Hubei described as “spillover cases.”

5) reasonably dismissive commentary from central bankers about the long-term impact (Bostic in the US and the RBA’s post-meeting statement),

So, markets look to be shrugging off Coronavirus concerns. At least for now.

Oil markets

Crude tried to rebound on Tuesday, as OPEC and its allies convened what amounts to an emergency meeting in Vienna to conduct an “urgent” assessment of how the coronavirus outbreak is likely to impact demand for crude, which plunged 16% last month in the worst start to a year since 1991.

And while OPEC + is apparently on the same page and speaking from one voice, the market is replying with an even louder unified voice as Oil traders continued to give their sell button a good work out overnight.

Additional OPEC+ cuts are necessary to put a floor on oil prices and the thought that they are unlikely to sit on their hands, even prompted a decent short-covering rally. But to no avail, as the market looks to be building up for yet another (black) swan dive. WTI settled below the critical $50 mark for the first time in over a year as Chinese refineries are stuck trying to give oil away. So, unless OPEC can discover a way to put oil back in the ground, the path of least resistance could be lower.

Oil continues to be driven by growing concerns about the demand impact of the coronavirus and the potential offsetting impact of a possible OPEC+ supply response.

But let’s not try to sugar coat things here, with nearly 50 % of China industrial complex shuttered we’re headed for one of the worst Q1 economic growth periods on record. With a significant haircut yet to be completely factored into the equation, for the finely tuned global oil supply balances, it will be like the equivalent of mixing oil and vinegar; they don’t mix.

Honestly, every time I read an OPEC headline, I have thoughts of The Little Dutch Boy putting his thumb in the dike.

The oil market is falling sharply, which is pretty alarming given OPEC is considering an emergency cut. But the implied near-term conservative fall in demand from China could create a supply/demand imbalance of >1Mbd in 1Q. The magnitude of this of implicit demand-driven inventory swell is of epic proportions and closely correlates with a historical sell off’s towards near term cash cost levels (break evens). So, once the reality of the data demise sets in, we should expect a lot of Q1 oil price revision coming down the pipe. Even more so, after looking at my inbox this morning, which is brimming with “Impact of the coronavirus on global growth” conference call invitations.

Gold markets

I got up early to write my gold commentary, and I have spent two agonizing hours trying to formulate a view with some level of sensitivity. Even more so, after looking at the latest EFT gold holding data, I would imagine a lot of investors are taking it on the chin today.

The gold market hit the skids as global equity markets rebounded on receding Wuhan virus fears. Still, arguably the move may be overdone and possibly attributed to positioning length as many investors got stopped out of positions as momentum continued to cascade lower.

The recovery in investor risk-on appetite, as corroborated by equity market rallies across the globe, incontrovertibly undercut the demand for gold. For now, China’s liquidity measures have more than offset the market fears about coronavirus concerns.

With Nasdaq hitting a record high and attracting USD inflows, which has seen $Index holding above 97.80, this also dented oil demand.

Bond yields also rose, which is typically negative for gold, but it was the rebounding equity market that did the most damage.

And then to rub salt in the gold market, wound positive US economic data undercut prices. December factory orders rose the most in 18 months in December.

Currency markets

I’m not sure if it’s still too early to repurchase a blue ticket back to AsiaFX, but the PBoC policy bazooka and currency guidance are certainly offering up an inviting springboard. While its also a bit early to suggest outhouse to the penthouse, the PBoC’s backstopped knock-on effect should ultimately attract regional inflows, especially if the Yuan continues to travel on a positive tangent. . And with the Ringgit turning overly bearish in quick order on China risk as local equity outflows raced higher given Malaysia’s export to China sensitivity. The PBoC stimulus effort could provide a boost to both Malaysia’s manufacturing and commodity export sectors and as quickly reverse the tide.


With that said, the bias remains to buy USDCNH for a defense against a fix above 7.0 USDCNY if economic concerns in China deteriorate quickly. In turn, a bearish for EMFX fix above 7 USDCNY, will provide the next staging post for a significant Asia FX risk wobble, which could then open the door for a Yuan correlated MYR selloff reminiscent of August -September 2019 lows.

The same goes for the rest of EMFX Asia.

WHO Raises Alert, But Global Pandemic Fears Ease


Not so surprising from the market’s perspective as traders had already moved from buying the dip to selling fact, the World Health Organization (WHO) Director Adhanom: declared coronavirus a “Public Health Emergency of International Concern.” The upgrade, however, has triggered some shorts to cover after the director gave the WHO’s stamp of approval to China’s aggressive containment effort. While in the same breath, eased some mushrooming fears by suggesting the number of outbreaks is relatively small, easing ballooning global pandemic fears

Over hedged positions have continued to unwind; still, the market is left with the struggle to quantify the economic impact of the coronavirus, which is a cause for concern. Yet, for now, the market’s risk lights have shifted from flickering on red to a steady shade of amber, which could bring more risk back into play. It’s incredible just how resilient US equity markets are. It appears that investors are taking another virus shrug and are now turning the focus to this week’s dovish fed delivery that suggests equity valuation multiples can continue to expand because rates are low.

But at this stage, this should not be confused by the start of a big transitory trade as the market will need more clarity on the results of containment efforts in China. But the peak in coronavirus cases might be near, and the turning point may not be far away; however, the key will be the spread of the virus slowing each day, so this could be a considerable weekend for risk as the market remains focused on headcount.

A little encouragement was all that was needed. And those that were taking a more rational view of things and viewed the dip as an excellent buying opportunity are getting rewarded across a plethora of growth asset classes.

US Q4 GDP came in touch ahead of expectations on Thursday at 2.1%. But softer details around personal consumption & PCE, however, will likely keep US ‘weaker growth’ narrative and the market consensus 2020 ‘weaker USD vs. Euro ‘ trade alive. Not that it ultimately died, it’s been more or less a case that dollar bears have been unwilling to stand in the way safe-haven dollar flows compounded by the low FX volatility and negative carry.

While it will remain challenging to put concerns over the coronavirus to one side, but fortunately for the overall risk climate, the robust data in the US should at least be able to keep risk on the even keel.

The Bank of England’s Monetary Policy Committee left rates on hold on Thursday at 0.75%. And short sterling positions came under pressure immediately on the BoE hold but, given the dovish nature of the decision, a +1.3100 top was about right on the overshoot, and the market then eventually settled into the 1.3075-1.3100 level.

I’ve been trading Mark Carney from his 2008 Bank of Canada days and Carney’s style of delivery – the ‘on the one hand, and on the other hand’ mechanism – means the presser tends to have a lot of flip flops. But at days end, it’s challenging to view Carney’s comments through anything other than a dovish on hold lens with undetermined Brexit uncertainties yet to play out.

Oil markets

With the WHO decree now out of the way, and with a softer upgrade than expected which lessened pandemic fears, oil traders can get back to the business at hand.

While it’s virtually impossible to quantify the full extent of the demand destruction from the virus outbreak, if there was one asset class more oversold than others, it had to be oil given the bigger than life global supply overhang.


Saudi Arabia is reportedly open to discussions about moving a planned OPEC+ meeting to early February from March to coordinate action and counter the oil price slide. In the wake of the WHO’s softer decree, the market will likely now view OPEC compliance efforts in a more constructive light as the negative sentiment snowballing effect from the coronavirus gets temporarily kicked to the curb.

Shorts were covered very aggressively into the NYMEX close as a global pandemic appears less imminent for now. But the key for the move to extend will be the interpretation of peak contagion as viewed through the spread of the virus slowing each day. So, the next 24-72 hours could be critical for a near term oil price comeback.


Gold falls as risk appetite rises on a less risk toxic decree from WHO as the equity market sell-off reverts. Gold was very much an equity market play this week as traders we’re buying gold as a hedge against a stock market meltdown. So, with the S&P 500 gaining nearly 50 points in fast order into the New York close, gold has come off hard as fast money speculators headed for the exits all at the same time into the NY COMEX as the futures execution window was closing quickly.

The coronavirus is evolving but ultimately a short-term transitory story; however, the bullish long-term gold strategy remains intact. And it is supported by a fed impulse after Chair Powell was not too subtle about sounding dovish.

The US elections and an array of other market risks have been put on the back burner and have been consumed by the bandwidth taken up by the virus. Still, the laundry list of market threats is not about to diminish anytime soon, and this will remain supportive for gold.

Currency markets

A very aggressive 200 pips USDCNH sell-off in the NY afternoon, which is typically a shallow liquidity period for currency trading as a whole, let alone CNH and other ASEAN NDF’s.


But with ASEAN risk at the epicenter of all things virus and with the local adding machines continuing to tally up the negative China GDP implications. It might be safe to assume for the short term anyway there could be US dollar demand on dips across the ASEAN basket to defend possible outflows when China comes back online. But with global contagion fears easing, it’s hard not to think that those concerns won’t start to diminish also.

It’s Going to Take More Than the ” Surgical Face Mask Hedge”

Perusing the ASEAN market increasingly tilted landscape, it’s going to take more the “surgical face mask” hedge to reverse the trend, which is trading at 10 X premium in my neck of the woods (Bangkok), incidentally.

Fears are increasing again and should continue to weigh on global markets with Asian equities suffering harder knockdowns. I am skeptical investors will be as quick to jump into trades fading these moves until the transitory period sets in.

But the market is so finely tuned these days, and in a matter of days, its self-correcting mechanism takes hold without the need for central bank policy. One of the more undervalued market self-correcting mechanisms is how quickly financial conditions loosen. From last Friday’s tops to peak fear yesterday, the bond markets shaved off a whopping 15 basis points on ten-year US yields, which offset the stronger dollar and decline in the equity market and accomplishes much of the central bank heavy lifting. But I’m not sure that itself will be enough to paper over all the cracks.

To be sure, the weakness in underlying ASEAN bourses and soon to be global is transcending the usual suspects, luxury, travel, and tourism.
Investors could be forgiven for thinking that markets have it in for them at the moment. Just as the market puts phase one trade deal to bed, then we get hit with geopolitical concerns around a potential US-Iran war, and just as those fears died down, they were replaced by WARS of another kind (Wuhan Acute Respiratory Syndrome)

The market was able to shrug things off quickly in the past, but the other risk here is that all the bandwidth is being taken up by the virus, and is taking focus away from other issues.

Frankly, I’m surprised there was very little attention paid to the progress Bernie Sanders had made towards the Democratic nomination.

FX Foreign outflows from SETi continued.  YTD outflows from Thailand approached $400mil, the highest outflows among Asian markets this year.  THB broke 31 as of this morning, and USDTHB continued to grind higher.

I’ve been a bit narrowly focused on THB and CNH for obvious reasons. Still, I think the ASEAN basket, and especially the Malaysia Ringgit will remain extremely vulnerable over the next few sessions on potential outflows as what supported the Ringgit entering the Year of the Rat is gradually evaporating. As discussions on the expected market fallout from the Novel coronavirus continue to send waves of negative across the bow and the market reaction is shifting from a knee-jerk USD adjustment to a full hedge buy-in as Asia’ key bellwether proxy nudges towards 6.99 (USDCNH). The Ringgit remain prone beyond the CNH correlation basis.

Welcome To Yet Another Turn Around Tuesday

Also, there’s been quite a turnaround in fixed income after the US Treasury markets were solidly bid into the European session on the back of “safe-haven” demand, and as Inflation expectations/break-even moved lower in consort with enormous fall in commodity prices, But as risk shifted into positive gear the yields on US 10-year treasuries lifted.

And the robust results from Apple beating Q1 estimates, as well as Q2 guidance estimates, should help carry the US market’s positive tone into the Asia session.

But overall the here is no smoking gun in terms of one single headline, but Zhong Nanshan, a Chinese respiratory expert, is being quoted by Xinhua as saying the coronavirus outbreak could reach a peak in 10 days or so.

And, South China Morning Post, citing an expert, says Hong Kong researchers have already developed a vaccine for the coronavirus, but need time to test it.

I was amazed by the amount of bandwidth getting exhausted over this virus scare and how it could negatively affect investors’ psyche. But I should have been focusing on the TV effect after some of  the more influential market TV commentators spent the past 48 hours talking about “when to buy the dip.”, it seems to have resonated.

S&P e-minis traded positive all day yesterday – through Asia, Europe, and into the US session, which seems to have spurred the dip-buying fervor. But I think this is further proof that big investors believe the bulk of the US market risk is concentrated in stocks not directly exposed to the current market worries in no small degree.

There was a lot of fear factor playing out in the bond market over the past 48 hours as investors thought US inflation could become unanchored due to the toppling commodity prices and push the Fed to let the doves fly. But the market remains well above the absolute fear zone. The carnage in the Oil patch in late 2014 through 2015 was much more of an issue, and trade war fears pushed break evens toward crisis levels last summer. So far, the virus effect has palled in comparison as inflation break evens have fallen but not by much.

But the market as so finely tuned these days, and in a matter of 24 hours, its self-correcting mechanism takes hold without the need for central bank policy. One of the more undervalued market self-correcting mechanisms is how quickly financial conditions loosen. From last Friday’s tops to peak fear yesterday, the bond markets shaved off a whopping 15 basis points on ten-year US yields, which offset the stronger dollar and decline in the equity market, which are both large negatives for financial conditions.

On the US economic data front, which fortunately didn’t fall through the cracks, investors were left to digest a positive smorgasbord of US consumer confidence and home price data. Which reinforced the ongoing Fed narrative that consumer spending can carry the load and sustain the expansion through the continuous soft patch in investment.

Now it’s pivot time to the FOMC, where the Repo market appears to be not overly stressed, but there could be some marginal guidance there. But there will also be questions about the Fed’s response to the virus. Powell should stick to the mantra “will respond as necessary” and that “it is a transitory shock.” This should be enough to reassure investors that the Fed has ample policy wiggle room and to also remind them that epidemics are transitory, and so are the market fallouts.

Oil Prices

Oil prices stabilized very much in line with risk sentiment, and oil prices were further bolstered by the API report, which showed US crude stocks fell as traders continue to trudge through the unenviable task of figuring out the potential demand devastation impact from the coronavirus.

But this week, gold was very much and equity market play, so most of the damage done to gold prices appeared to be triggered by the comeback in equity markets overnight.

The FOMC is in focus, but with the recent virus scare, it’s improbable the Fed will stray too far from their current mandate while not wanting to upend the apple cart by commenting on the Repo market with sentiment arguably still fragile.

On the Virus front, Chair Powell will likely hammer home the transitory nature of the virus, which will not be particularly bullish for gold.

Still, there remain a plethora of risks that suggest gold prices could easily and quickly regain lost ground suggesting bid in dip mantra will continue to resonate.

But in 12 hours, the market has swung from 70:30 $1600 before $1560 to now 80:20 $1560 before $1600 as gold investors remain extremely impressionable by the moves in US equity markets.

Currency Markets

The key Asia bell-weather fear gauge, the offshore Yuan, continued to advance and pare losses overnight, apparently triggered by Xinhua and SCMP headlines. Long USDCNH was the market preferred defense strategy with onshore markets closed so positioning was massive long

Even yesterday, the strong adverse reaction on the CNH had macro names piling into long Yuan positions, probably thinking that the exaggerated sell-off didn’t reflect the actual mortality rate that is currently very much in line with the common flu.

And while it doesn’t feel like hold on to your hat moment for a short-term reversal and short squeeze on USDJPY but the relatively tame market reaction to the big jump in new nCoV cases is encouraging. And when combined with the taming of the Yuan beast (USDCNH topped and reversed), it might bring out more ASEAN currency risk-takers from a state of self-imposed hibernation (my hand goes in the air), which should be positive for local currency risk.

In G-10, you would expect the risk reversal to play out in AUDJPY, so that could be a bellwether for the day. Mind you, G-10 and ASEAN FX trader’s duration thresholds have compressed to about 2-4 hours in this environment, so I think the market could remain a bit whippy.

This article was written by Stephen Innes, Asia Pacific Market Strategist at AxiTrader 

Asia Update: A Risk-Off Sprint For The Exits

In lockstep, USDCNH has been in demand and is trading above 6.96 as traders begin to price in the unavoidable China GDP knockdown. All the while traders are waiting with fingers crossed for a signal of PBoC policy deluge, which could provide a suitable band-aid to stop the bleeding.

Japan’s Chief Cabinet Secretary Sugga has already hinted at policy measures this morning to buttress the coronavirus impact on Japan’s tourism. so there could be some consorted regional policy  measure in the works

But with a risk-off sprint for the exits at the open this morning, gold traded to a high of $1589.00 and silver to $18.3800. The market has retraced since the initial clamber, but demand remains firm on dips.

Liquidity is at a premium with Lunar New Year holidays in China, Singapore, Hong Kong, Korea, Taiwan as well as Australia Day which may have exacerbated moves

Oil prices got hammered to the tune of 2 % at the open as the market continues to move into full bear mode and price in worse case scenarios. This despite Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman Al-Saud performing his best Hans Brinker routine, suggesting the sell-off is “primarily driven by psychological factors and extremely negative expectations adopted by some market participants despite its very limited impact on global oil demand,” ( Reuters). But upticks continue to get sold. And with a possible 1 % haircut to Chinas GDP as a result of the domestic virus break out, it’s hard to argue the direction of travel, especially given the current oil price linkage to the Chinese economy.

Traders (or Algos) sliced through resting stops on the March 2020 contract on incredibly high volumes for an Asia holiday. Globex is showing 57,211 WTI contracts going through so far this morning. Oil positions could be at risk on a deeper dive as long oil contract bullish bets remain elevated on a 6-month context (Jan 24 +520.6 K vs. Oct 11 +355 K)

How bearish is it ?? traders hardly blinked at the news the US embassy in Baghdad came under attack from rocket fire overnight, mind you there was no damage and no threat of supply disruption.

This article was written by Stephen Innes, Asia Pacific Market Strategist at AxiTrader 

Trains, Planes, And Automobiles

So far, US equity markets have continued to react at the sector level and not at the broader index level. This is probably due to the bulk of the market risk concentrated in stocks not directly exposed to current market worries. If the flu does spread, then the defensive macro allocation game plans will probably kick in with full force.

In the meantime, traders are weighing the anticipated China growth fallout against the backdrop of the current global growth recovery. While the calculus is not coming up roses, it’s far from a state of global market panic. Still, if risk aversion starts to spread beyond Chinas borders and starts to affect more than the usual suspect’s luxury, travel, and tourism, then we will likely see a more significant dive in the broader global indices. 

My head is still spinning this morning after Chinese equity markets got hammered due to concerns over the coronavirus with the CSI 300 down 3.1%. Of course, it’s hard to say fears are overblown, especially when people are dying. However, the mortality rate is around 3%, compared to SARs, which was 15%, and Ebola was 70%, so it’s hard not to argue that the Chinese sell-off was a complete overreaction due to the Lunar New Year effect. As such, price action throughout the rest of Asia should be the better proxy to gauge risk. 

Oil markets

Oil market virulent sell of on the back Wuhan flu scare was mollified by a timely decline in US crude inventories as the prompt contract recovered some lost ground after falling some 3.5% amid demand devastation fears. But is it enough to limit the carnage into the weekend, it will very much depend on the stream of outbreak headlines?

But it was a pretty vicious sell-off, and at some stage, profit taking will likely set in, even more so as traders start to contemplate if the China market sell-off was overblown. 

However, oil prices could remain on a slippery slope as traders remain incredibly twitchy about the effects of the Coronavirus outbreak could have on Chinese GDP and air travel more broadly with current estimates implying 250-300kbd of demand at risk.

China remains the most significant driver of year-on-year oil demand growth, so it’s fair to assume that the Oil markets will continue to bear the brunt of the China flu fall out. And if the virus stunts economic growth in an echo of the SARS epidemic nearly 20 years ago, the falls could be even more precipitous than projected. And there are two reasons why: 1) consumption is now a more substantial part of China’s GDP, and 2) the overall growth trajectory. In 2002, retail sales accounted for 34% of nominal GDP. This share is now 40%. 

But significantly for oil markets consumption of services, like transport (related to tourism), has also increased exponentially. Using the SARS epidemic as a lens: In 2002 from a sector perspective, the transport sector was the worst-hit, followed by accommodation and catering, and other services (culture, entertainment, education, social service, etc.)

There is an extremely tight linkage between Chinas economic growth and its appetite for oil.

Although the Libyan supply disruption has been falling through the cracks, their production faces falling by ~1Mbd very shortly unless the pipeline blockade is lifted – the market appears to be assuming it will.

Gold markets

Gold prices remain supported by defensive positioning due to the unknowns around the coronavirus. 

The patterns can look random. But some health experts have predicted, based on the SARS epidemic 17 years ago, that the coronavirus has now entered a more explosive phase of growth, which could potentially reach its peak in March, before tapering off in May. The upcoming Chinese New Year holiday looks to be a sure-fire catalyst. In 2019, an estimated 3 billion trips were made during this national holiday. And despite China-wide multiple city lockdowns, the fact the virus has spread to Singapore, an overly scrutinized customs entry point, suggests the best window for controlling the infection may have passed.

So, if the virus continues to spread, and at a faster pace in the coming months, it will represent another significant headwind to growth. Given how early we are in the newfound growth cycle, more policy easing will be needed to support growth, which could be viewed as bullish for gold. A policy response from the PBoC is a given, but the big question is if the Feds need to react.  

But the virus in itself is not the primary reason to keep your percentage allocation in gold more elevated than usual. 

With the FOMC next week, all eye and ears will be honed on Chair Powell’s state of the economy address. Still, more specifically, Chairman Powell will be grilled about the financial stability risks created via the Fed’s liquidity injection via balance sheet expansion. There’s no blueprint for unwinding the balance sheet without some element of risk. But the fear heading into the next week’s meeting is a communication misstep as he will need to communicate a temporary pause in the Fed’s repo activities. Still, a misstatement could easily trigger a huge adverse market reaction. This in itself demands some protection either via long gold on downside JPY structures. 

 Gold investors appear willing to increase gold allocation on dips ahead of “Super Tuesday “US election risk. And as a hedge against trade tensions reigniting, but broadly speaking, they haven’t brought out the big guns just yet. 

But overall, it remains a very comfortable environment to own gold with US yields drifting lower and 10-year TIPS lingering around the lower end of the range. The more prolonged low yield environment continues to add to golds allure as a must-have hedge against the backdrop of a plethora of market uncertainties. 

But these strategies along with the January seasonality support might be worth reassessing on a clean break of $ 1540/oz

Currency Markets 

The Ringgit 

The BNM, pre-emptive rate cut, has triggered a strong demand for the bond market duration, and those market inflows have been supportive of the Ringgit.

 Consumption and household spending had been slowing, so the interest cut should provide a decent economic boost where it’s most needed and could prove suitable for equity market risk if the stimulus efforts prevent growth from falling below 4 %.

Australian dollar

The unemployment rate headlined stronger overnight at 5.1% (expected 5.2%), and the market drove Aussie higher. The initial assumption was that RBA would now hold back on easing during the next meeting on Feb. 4, and expectations for a cut came off from 50% to 30%. However, at a closer look, the data is no cause for celebration. The entire employment gain came from the addition of low skilled part-time jobs.

With Yuan proxy risk-taking hold, there was a relatively deep dive lower overnight before some semblance of risk appetite returned as the market started to factor in China market sell-off overshoot. 

This article was written by Stephen Innes, Asia Pacific Market Strategist at AxiTrader 

Asia Wrap: We Know China Is Sneezing But Will The Rest Of The World Catch A Cold

We know China is sneezing. The big question remains if the rest of the world catches a cold.

If the flu does spread, then the defensive macro allocation game plans will kick in with full force. In the meantime, traders are left to weigh up the anticipated China fallout against the backdrop of the current global growth recovery. While the calculus is not coming up roses, it’s far from a market panic. Still, if risk aversion starts to spread beyond Chinas borders and the usual suspects luxury, travel, and tourism, then we will likely see a more significant dive into safe-haven assets.

It was a very poor tale of the tape today as China markets were absolutely hammered


Risk traded heavy in Asia, and both USDJPY and yen crosses came under pressure. There has been a bit of a relief rally as Europe walked in, but overall, price action is very rangy in G-10.


Gold has seen some haven interest, and while there is growing angst, that Wuhan flu could trigger a SARS-like event. But without a significant hit to the global economy, it’s unlikely to trigger a dovish Fed reaction, so unless there’s a real threat of a pandemic, gold topside could be limited. But non the less Gold continues to provide a decent safe harbor.


Oil traded very poorly this morning so the SXEP will likely remain under pressure. Outside of flu induced demand devastation concerns, supply remains plentiful. U.S. crude stockpiles rose last week by 1.6 million barrels, against expectations of a drop, the American Petroleum Institute said early this morning


The ECB meeting today is the primary macro catalyst; investors got excited at President Lagarde’s first meeting when fiscal plans were discussed, and this helped push rates and the Euro higher for a period. However, the market is setting up for a dovish event, so anything hawkish, in particular fiscal, will see a more positive reaction for rates and the Euro.

This article was written by Stephen Innes, Asia Pacific Market Strategist at AxiTrader 

Risk Sentiment Returns As The S&P 500 Notches Another Record High

With risk sentiment returning, Asia price action today suggests, the Masters of the Universe (bond traders) will continue to fade the bounce in fixed income. But more significantly for SPX investors who were quick off the mark, they were offered up a chance to buy a rare dip in the index. Gong Xi Gong Xi!


Not so great for gold markets as with the S&P 500 making record highs, the downward skew has been dominant. And with gold’s seasonality bounce about to fade as we enter the LNY, we could see a more pronounced unwinds if risk sentiment continues to veer favorably.

Currency Markets


Sadly, I’m still taking a deer in a headlight approach to the Yuan. I guess I’ve traded the CNH over to many LNY. For those that follow my daily blog, you know that I started ratcheting back short-USD EM exposure last week in anticipation of some profit-taking, which may bring forward the stumble in risk appetite that typically occurs in early February. This could be magnified, possibly by a sharp decline in China’s retail sales and catering and hospitality revenues due to China’s flu. But there’s way too much seasonality interplay these days not to factor some degree of seasonal risk tendencies into the playbook.

The Pound

The Bank of England is the one central bank in play this month. Investors expect the major swing factor to be the flash PMIs, published on Friday. Yesterday decent UK employment figures continued to resonate in Asia and help lift Cable. Flow wise, and carrying through from last week, Asia macro traders want to buy Sterling. Whereas I think the smart money view, not to say my colleagues in Singapore are dumb, is that a one and done Bank of England might provide excellent entry points below 1.2900 (especially on an algo overshoot). “Cable” can still print 1.4000’s this year, depending on just how dovish the Bank of England decides to pivot.

Wuhan coronavirus outbreak.

China National Health Commission minister Li Bin says there are 440 cases of new virus across 13 provinces and cities, with nine deaths reported in Hubei; they are strictly controlling food markets. Which confirms Health agencies are now working much more proactively and transparently to contain the Wuhan pneumonia than they did with the SARS outbreak

As far as quantifying the potential impact of the coronavirus in relationship to SARS, I quickly discarded Brooking Institute findings that analysts seemed to paraphrase their views from. But my early-stage discovery, with the help of my quant, so far is pointing to this outbreak being much less impactful than the SARS epidemic. Not to suggest its in the rear-view mirror, but at this stage of the epidemic diffusion, it’s not a significant risk-off driver in my view.

Globalization and Disease: The Case of SARS (Brookings Jong-What Lee and Warwick J. McKibben Sunday, February 1, 2004)

This article was written by Stephen Innes, Asia Pacific Market Strategist at AxiTrader 

CDC Rings In A Level Two Alert Watch “ Practice Enhanced Precautions.”

As expected, there has been a markdown in China exposure and luxury – as positioning had been very consensus in the latter into the Lunar New Year festivities. But there are no real alarm bells just yet. And while the outbreak is getting top billing and its lions share of attention, it’s not a massive risk-off driver. Even more so in the US markets given its Teflon persona amid the tendency to relentlessly grind higher of late, while looking through any negative that stands in the way.

Broad positioning aside, the majority of the US market risk is concentrated in stocks not directly exposed to current market worries. So, US investors likely feel more confident buying the S&P 500 dip.

But the timing for this outbreak, although an antibody has reportedly been discovered, couldn’t have been worse for mainland investors as the ASEAN region enters peak commerce and travel week with Chinese around the world celebrating the Lunar New Year. As well, Chinese investors may shy away from their typical bargain-hunting mode as they could be reluctant to hold stock market risk over the long holiday shut down on the Shanghai Stock Exchange.

Oil markets

The oil market, somewhat predictably, took its cue from the price action after the Abqaiq attack in September and quickly unwound the Libya supply disruption risk. And this will likely be the blueprint for the future unplanned disruptions that remain within the magnitude of the Saudi Armco facility supply outage. The massive non-OPEC supplies have entirely revolutionized the way traders reprice middle east supply risk, and now these supply interruptions turn into a fader’s paradise.

And while the well-documented supply glut continues to hang like a dark cloud over markets. But just as oil prices were clawing back some gains after Germany’s ZEW survey beat expectations and as US risk markets were stabilizing and trending higher. Reports that the Coronavirus has made its way stateside sent prices lower again.

My view is that oil prices could remain supported into the March and possibly the June contract reflecting a price premium on crude oil from recent geopolitical events and OPEC supply compliance. However, the outlook gets incredibly dreary beyond that point, as market fundamentals will probably drive the crude oil price forecast.

Global economic data is tentatively stabilizing, but the recovery remains sluggish, suggesting the permafrost stagnation fallout from the trade war will be a more prolonged thaw than currently in the price.

There are growing concerns about China’s ability to meet its high commitment to purchase US energy, and there are already mounting concerns about the potential difficulty of progressing to a Phase 2 deal. So, with several contentious issues yet to be resolved, risks to the existing agreement could also weigh on the oil price.

Gold markets

A growing focus on the outbreak of the Coronavirus contributed to pronounced equity market weakness across Asia yesterday which spooked Far East investors who then dove into the Gold market. Usually, equity market weakness and lower US Treasury yields – both of which occurred in Asia, should boost gold, but that didn’t play out as expected. Global gold players viewed the market reaction though a more Asia centric lens and faded Asia bounce throughout the London session and into the opening bell in New York

Still, the market bounced back convincingly after a stop-loss frenzy below $1550/oz overnight as strategic players bought the dip.

Gold investors appear willing to increase gold allocation on dips ahead of “Super Tuesday ” US election risk. And as a hedge against trade tensions reigniting, but broadly speaking, they haven’t brought out the big guns just yet.

The problem with formulating an excessively bullish view in this environment, besides no dovish impulse for the Fed, is the lack of institutional buying from the broader demand profile. Hedge funds remain on the sidelines, and sovereign accounts that were active at the start of the year seem to be absent.

And at the same time, physical demand into the Chinese lunar new year is weak, and India appears to have ample inventories. I don’t think we should look through the erosion of underlying physical demand, principally in Asia, where the bulk of physical gold is purchased.

Currency markets

The Yuan

The Yuan weakness is leaving a massive footprint across not only the EM market but G-10 also, as the dollar bulls have donned the rally cap with the safe-haven and USD carry appeal standing out like a beacon against the backdrop of Asia’s pandemic fears. The market was ill-prepared and underestimated the potential of the flu spreading, until yesterday that is, as the market was caught very long and wrong the ASEAN basket.

The Ringgit

Coat tailing the Yuan weakness, the Ringgit has backed up on concerns about the viral pneumonia outbreak in China, which threatens to derail the regional growth spurt. The sentiment was also dampened, to a lesser degree mind you, by yesterday’s downgrade of Hong Kong’s rating by Moody. Of course, Malaysia has had their runs in’s with rating agencies in the past.

The Euro

Once again, EURUSD price action has been disappointing despite robust European data. Germany’s ZEW expectations of economic growth were at the highest level since 2015, and the pair managed to rally 30 points in the aftermath. The lack of enthusiasm for the Euro is a bit of a puzzle. The fundamental reasons for being long were starting to gain momentum this week, with reports of a French/US détente on digital tax. And now with the massive German ZEW beat implying that Friday’s PMI is due for a significant jump. A pickup in the reflation theme will be vital to EUR higher, given the low vol/high USD carry FX morass.

This article was written by Stephen Innes, Asia Pacific Market Strategist at AxiTrader 

Asia Wrap: Antibody For The Wuhan Coronavirus?


I’m reading this via Yicai (Chinese via google translation) of reports that a pharmaceutical company has announced it has an antibody for the Wuhan coronavirus, and gold markets have been very reactive already unwinding much of this morning’s buys.

Equity markets moved into risk-off mode overnight with E-mini S&P futures down 40bp, and Europe is expected to open the same. Asian weakness was led primarily by the spread of the coronavirus in China, which comes on top of a downgrade of global growth forecasts from the International Monetary Fund, and Moody’s cut the credit rating of Hong Kong.

Fears over the spread of SARS-like viral pneumonia in China have been bubbling away in the background since the start of the year, but with another fatality reported this morning, it provided enough evidence that the virus is spreading ahead of the Chinese New Year holiday. Also, Moody’s downgrade of Hong Kong’s rating to Aa3, although the latter is hardly a surprise, the septic combination seems to have provided enough reasons for those investors looking for a short-term exit point to head for the hills after seven straight weekly advances.

The Coronavirus outbreak can cause a massive demand shock, particularly to the consumption of services, especially travel. So, traders are hedging the tail risk. However, barring further outbreaks, the economic impact could be relatively short-lived. But having this outbreak occur in an environment of an already subdued global economy due to the US-China trade war, investor’s sentiment and reactions are perhaps getting magnified when being viewed through the trade war lens. And I would caution that generally, the market and especially the US have looked through these types of events in the past. So, we could see aggrieve unwind in Europe and the US markets given the there was possibly a more outsized reaction in Asia as those economies are at the epicenter of the breakout.

But on the macro side and something not so quickly sidestepped as it adds a thicker layer of skepticism about the green shoots of the global recovery. The sharp decline in Korea’s 20-day exports to China and the US has raised concerns about the health of the global growth recovery even more so in the wake of the IMF modestly reducing its global growth forecast.

The only real positive in the last 24 hours were reports that the US-France may be near a truce over their Digital Tax fight.

Germany’s ZEW survey is due at 1000 GMT. It looks set to show a slight improvement in January, rising to 13 from 10.7 in December, according to a Bloomberg survey. This print is enormous for the buy Europe argument as the naked truth will be evidenced in ZEW. Likely the highlight of the week for European markets


After predictably unwinding the Libya supply disruption premium, Oil markets have remained under pressure since the sharp decline in Korea’s 20-day exports to China and the US, which has cast a dark shadow over the global growth recovery. At least in the oversupplied oil sector, traders remain skeptical about just how much of an impact the early stages of global growth recovery will positively impact the prompt contracts.

Currency Markets

Yuan (ASEAN basket)

The risk-off sentiment sent the USDCNH above 6.90. Large outflows from onshore led to cash returning to the CNH market, pressing the front-end of the curve lower, while lower rates due to risk-off sentiment also weighed on the back end. The Yuan weakness has caused a rippling effect across the ASEAN currency basket, which is trading weaker following the contagion scare.


The Yen has been in demand attracting safe-haven flows, although I’m not so sure how safe Japan would be if an epidemic spread especially ahead of the economic boosting 2020 Olympics

This article was written by Stephen Innes, Asia Pacific Market Strategist at AxiTrader 

Coronavirus On The Regional Risk Radar

The Chinese city of Wuhan reports 4th death from pulmonary Coronavirus 

The cost to the global economy can be quite staggering in negative GDP terms if this outbreak reaches epidemic proportions as until this week, the market was underestimating the potential of the flu spreading. But it’s an essential enough development that that market will continue to monitor on the risk radar as if things turn critical; it could provide a massive blow to the airline industry and a knockout punch to local tourism. 

As such the markets are opening up in Asia on a cautionary tone, I guess that’s what happens when WHO calls an emergency meeting and bringing attention to epidemic concerns. 


US stock markets were little changed after global markets dipped on Monday as stock pickers sit tight, awaiting a fresh bundle of corporate earnings reports. 

The US holiday negatively impacted trading volumes around the globe, while the absence of any macro or headline volatility also compounded matters. 

The S&P500 is already up + 5.3% for the year, adding more pressure on active managers to produce returns. Indeed, you don’t want to risk falling too far behind the benchmark this early in the year, and I think there is probably an element of that driving investor’s sentiment and market momentum. 

The IMF has made a tweak  to its 2020 growth forecast (3.3% vs. 3.4%) and notes that while downside risks are still prominent, they are less skewed towards adverse outcomes. On the plus side, it says there are signs of the global manufacturing slump and that trade is bottoming out. The work also showed the impact of global central bank policies, suggesting growth would be 0.5pp lower in 2019 and 2020 without stimulus.

Oil markets

Reform driven protests in Iraq continue to escalate. The bullish risk is “if ” the widespread unrest sets sights on oil production fields and effectively interrupts the flow of oil in one of OPEC’s most prominent producers.

Oil traders were quick to sidestep the middle east supply disruption and refocus on the bearish oversupplied market conditions after the IEA just last week projected a “solid base” of oil inventories. At the same time, the deluge of US shale oil production would help offset any unplanned oil supply outages.

Also, the trader then started to factor in big build in the US rig count reported Friday into the inventory calculus since, in the absence of any significant US macro data release, the inventory reports could set the pace of play for this week’s oil market.

Gold markets

Gold remained somewhat constructive overnight, stabilizing around $1560 level as the yellow metal continues to find support from January seasonality, which has tended to be a positively active month for gold prices over the past decade.

Given that the USD is up since late December and equity markets are at record levels, gold has held up well.

A key question for market participants is how to position for what happens at the Iowa caucuses (Feb 3) and New Hampshire primaries (Feb 11), and if the markets take a shift to the left before ‘Super-Tuesday,’ how big of a change are they willing to price?? If Sanders lives up to recent polling and does very well in Iowa and New Hampshire, the market will likely sell risk assets and dive into gold.

Also, Fox News has indefatigably reported on White House plans for an election year fiscal stimulus. The reported options being discussed include cutting corporate and individual tax rates and increasing a subsidy for lower-income workers with families. It’s never clear cut how the FX and Bond market will react, but with the Fed about to deliver a new monetary policy framework, it’s unlikely the Fed would be quick to raise interest rates this time around. In the context of a Fed on hold narrative, the likelihood of higher debt and deficits is on balance bullish for gold.

Asia currency markets.

In an attempt to curb the Thai Bhat appreciation and leading by example, Thailand’s Government Pension Fund will increase its international investments to 40% if the Finance Ministry approves expansion of the current 30% ceiling. If other local funds follow the lead, it could provide a solution to the BoT currency conundrum.

A media report says PM Mahathir will not take any retaliatory actions against India over the boycott of palm oil purchases, which for the time being, diffuses growing tensions and could allow cooler heads to prevail and come to a mutual understanding.

Investors still like the cyclical rebound stories in Asia, which will continue to help the Ringgit.

Overnight the Ringgit weakened as some concerns over the India tension, and the spread of the coronavirus in China are raising some health worries in the region.

This article was written by Stephen Innes, Asia Pacific Market Strategist at AxiTrader 

To Much Time On My Hands.

Thursday’s jobless claims are likely to receive a bit more scrutiny than usual, given both the scarcity of other data releases this week as well as how central an active labor market — and by extension the consumer — is to the Fed’s narrative. 

However, with traders now pivoting back to data, the lack of any significant data impulse this week may hold the markets bullish ambitions in check. Traders usually hate having too much time on their hands as they could start to second guess the lofty risk markets. I will admit to feeling somewhat conflicted when it comes to markets at the moment, on the one hand, I want to stay with the flows, but I don’t want to get caught on a stampede into the downside. And while it’s has been a great ride on the rally bus, it might be a good idea not to stray too far from the exit door. 

Discretionary positioning that typically follows growth indicators has moved sharply higher, suggesting these positions are running miles ahead of the economic realities. And while the data hasn’t gotten worse, at the same time, it doesn’t point to a significant reassessment of the economy. 

The Pound 

In the UK, the market pricing for a January rate cut has shifted notably over the last few weeks to just above 70% as uncertainty around the Bank of England’s economic forecasts has risen.

The Pound traded sharply lower after much weaker than expected UK retail sales during December last week and has finally started to react like a currency that’s positioning for a rate cut. However, possibly limiting downside moves this week is the perception that if the Bank of England does cut, it will be a one-and-done insurance move before Mark Carney punches out. 

But the options markets suggest the next few data points will be critical for the BoE meeting in January. This Friday’s PMI – the gap move priced in is now + 35 bp up from 17bp last Thursday – and buyers of the BoE meeting itself on Jan 30 – the combined gap move for the FOMC/BoE is at +52, from 35 last Thursday.

The Yuan 

USDCNH has headed lower early despite the broadly firm dollar. Equity inflows and tight funding are both weighing on the spot markets this morning. But to each there own. CNH continues to look rich given the current level of tariff rollback, And even more so when you start to factor in that come of the improvement in the China data could be related to the upcoming New Year holiday as companies ramp up production ahead of the shutdown. Like I implied, too much time on our hand leads to analysis paralysis. 


 With so much data and news flooding our screens and ears, we often misinterpret what it all means. The stock market is but one indicator of the economy; however, too often, we tend to obscure the relationship into one giant morass. But its the lofty equity market that provides an excellent reason to own gold, especially when those very same markets are arguably pricing in an over-inflated view of the US economy. Sure, the economy continues to chug along, but there is nothing in the data so far to warrant a significant rerating 

Also, the market needs to start to factor in what happens at the Iowa caucuses (Feb 3) and New Hampshire primaries (Feb 11), and if the markets take a shift to the left before ‘Super-Tuesday,’ how big of a change are they willing to price?? If Sanders lives up to recent polling and does very well in Iowa and New Hampshire, the market will likely sell risk assets and dive into gold. 


It was always improbable that middle east political risks will recede, but the impacts on oil markets are impossible to predict. However, as we saw after the September attacks on Saudi facilities, prices were quick to adjust back down once it became clear that supply buffers were adequate, and market supplies could be sustained. 

In a similar fashion, while Oil prices pushed higher in Asia following supply disruptions amid political disquiet in Libya and Iraq, given the market propensity to fade geopolitical risk quickly, intersession prices were capped. 

This article was written by Stephen Innes, Asia Pacific Market Strategist at AxiTrader 

Low Inflation And Improving Global Data Have Set Up For A Goldilocks Scenario

Weaker global inflation coupled with constructive comprehensive growth data and a US-China Phase 1 signing has set up for a goldilocks scenario in which investors find incredibly alluring. All the while, a Fed on hold ensures yields are held at bay while reflationary assets like equities and commodities continue to flourish as risk aversion continues to slide.

Indeed, there’s a belief that global growth will continue to pick up speed over the coming months, as significant downside risks to the global economy have been turned aside, and worries over a possible recession have diminished, with the data giving credence to the possibility.

Oil markets

Oil prices pushed higher on Monday following supply disruptions amid political disquiet in Libya and Iraq.

Libya’s biggest oil field began to halt production after armed forces shut down a pipeline, pointing to possibly more turmoil in Libya.

Also, and compounding the Libya supply disruption, a security guards strike has forced a temporary stoppage of work on an Iraq oil field on Sunday. This outage comes amid rising fears that general unrest in Iraq, OPEC number two producer, could intensify and trigger a more widespread supply disruption even more so if the protesters set sight on the oil fields.

Still, prices are likely to remain capped, given the market’s reactive nature to fade geopolitical risk quickly.

While the phase one deal is being viewed in a favorable light as is the basing in global economic data, but at this stage of the global economic recovery, it doesn’t point to a significant enough upward rerating of global demand to provide a solid bullish catalyst.

And the IEA monthly report made headlines projecting faster non-OPEC supply growth than demand in 2020, which provided a not so subtle reminder about the global supply glut.

Gold Markets

Gold is still trading fairly constructively despite somewhat positive risk news flow in the last few days. The yellow metal continues to find support from January seasonality, which has tended to be a positively active month for gold prices over the past decade.

Gold continues to mount rallies despite a higher USD and firm equities.

In 2019, gold was less sensitive to the USD as US interest continued to move lower, and while the Fed lower for longer narrative is not necessarily bullish for gold prices, it’s no bearish either.

US equity markets have provided a poor indicator of the health of the US economy as the equity market rally remains primarily sponsored by the Fed short term money deluge. So, with equity indices trading at record highs and much uncertainty over how the market will react once the Fed starts to pull back on Repo injections, the fear of a mini equity market taper tantrum keeps strategic gold buyers coming back for more.

And while the US economic data continues to stabilize favorably, at this stage, the US economy doesn’t warrant a significant enough rerating to push bond yields higher, which is supportive for gold.

Still, the gold market is in search of the elusive catalyst to trigger a gold rush revival.

The big question for the risk market do we continue to party like its 2017??

Asia currency markets

Asia currency volatility continues to grind lower, and the local carry trade remains in fashion. I addition, the more export sensitive currencies in the North Asia basket also continue to flourish in the wake of the P1 trade deal. And with the USDCNH extending gains below 6.90, the market has also continued to unwind any remnants of existing bearish Yuan hedges with as traders now position for a growth revival in China to kick in at a faster pace than expected. However, CNH might be a bit rich at the current level, given the level of tariff rollbacks.

BNM is scheduled to meet on Wednesday, where they are widely expected to keep their benchmark rates unchanged, although subject to where the P1 economic data unfolds, they could cut rates later in the year. 

As for the Ringgit, the local unit is expected to be a primary beneficiary of the global reflation trade, so improving worldwide economic data could be the key to a more fruitful Ringgit revival. 

This article was written by Stephen Innes, Asia Pacific Market Strategist at AxiTrader

Markets Saw “Glass Half Full” In Recent Data

A quarter earlier, this slowdown was seen as a strong enough reason to sell out in the markets. Observers are now paying attention to signs of stabilization, as the growth remains at 6.0% YoY for the second consecutive quarter, also noting that industrial production and retail sales accelerated in December.

Chinese yuan got a new boost from this data. The USDCNH pair declined to 6.85, its lowest value since July 2019. Among the significant movements, it is also worth noting that the pair USDJPY has overcome the 110 mark – a psychologically substantial round level, as well as 29000 for Dow Jones.

On the currency market, it is worth noting the dynamics of the Swiss franc. On Friday morning, USDCHF and EURCHF rolled back from multimonth lows. The rally of the franc this week held on speculation that the SNB will reduce the scale of the FX interventions, curbing CHF growth. However, this rally moved against the stream amid declining prices for “safe” assets. Therefore, the reversal of the franc on Friday may turn out to be a more stretched move, rather than just a Friday’s profit-taking.

GBPUSD continue its struggle for the levels around 1.3000. The pair got support after the decline at the start of the week, despite the weak data. The retail sales figures, which will be published later today, may both bring the pair back to decline, confirming the weakness of the British economy, or contribute to the strengthening of purchases in case of retail activity recovery.

This article was written by FxPro