Don't call it a year just yet

The markets are taking a bit of breather today after shedding considerable geopolitical risk. But it's early in the week and lots of data to navigate before the holiday, so don't call it a year just yet.

Still, investors remain in profit-taking mode, and looking at the small bounce in gold; there's even some equity downside insurance demand leaking into the equation. 

Healthy industrial production and retail sales data continues to support the notion that the Chinese economy is near its cyclical bottom. And at a minimum, the phase one deal between the US and China should further stabilize China's economy in 2020. And it could help improve CEO sentiment as the uncertainties around the agreement have been delaying business decisions.

I'm a bit surprised the data didn't boost sentiment decisively. Still, I suppose with fixed-asset investment over the Jan-Nov period was only up +5.2% yoy. , so the lingering effects of the US-China trade war continue to play out in some of the crucial data metrics. 

 

Oil market

Oil traders were disappointed by the level of tariff rollback. Still, given the complex nature of the Oil market, there is always something going on to whet the voracious speculative appetite for oil traders. But looking at price action today, we're all trying to figure out what the next catalyst is!! 

I'm still positive on oil markets into 2020 because of OPEC compliance limiting downside risk and a possible slide in US production that could offset gnawing concerns that the market is facing a massive supply glut and inventory build, at least in the first half of 2020. And the bottoming of the global economic data as further evidenced by today's China robust economic data dump is encouraging. 

But market positioning could be a tad long ( as per IMM data) in the wake of OPEC compliance agreement. And since phase one missed on the market's tariff rollback expectations, traders could shift into aggressive profit-taking mode on the first bearish hic-up on the inventory data. So in the absence of a bullish catalyst, we could see traders reduce long oil position risk on upticks, limiting topside price action before the API inventory report. 

 

Gold market 

Trade war remains a very fluid situation that should keep the Fed anchored to a dovish bias, buttressing gold sentiment. With the S&P 500 trading near all-time highs and valuations starting to look stretched, it only makes sense to diversify that equity market risk into gold, especially with interest rates so low and US macro uncertainties so high.

 

ASEAN Currency Wrap

I still expect the USDCNH  to trade 6.95 into year-end on the back of the bottoming in China's economic data, which could send the USDCNH another leg lower. But further Yuan gains beyond that are a bit of crapshoot as its unclear under what conditions the US may agree to roll back additional tariff hikes and when those reviews are going to happen.

USDKRW is inching lower with the expected trade talks between South Korea and Japan on export curbs. With US envoy Biegun in Seoul, expect more news before the year-end deadline that North Korea has imposed for nuclear talks.

USDTWD is very well offered with equity-related inflows - around $500 mn on Friday.

The USDMYR has traded a bit weaker today. Still, given that all local currencies appear to be getting driven by equity inflows today, the slide in Petronas shares, possibly on the back of political discontent over the deal, sees the KLCI struggling to make gains above 1570. Signaling there is not a great deal of appetite for the Ringgit  from an equity inflow perspective