Asia Market: Month-end rebalancing flows dominate the landscape

Market highlights 

• Month-end portfolio rebalancing and weaker economic data expectations underpin stock sentiment
• Oil markets hopeful that OPEC’s disharmony in the ranks is resolved
• USD strengthens after some of the highest-selling month-end volumes since mid-year
• Gold gets caught in the month-end trap

Stock Markets

US equities were weaker Monday, the S&P down half a percent heading into the close. The main narrative underpinning sentiment over the past 24 hours appears to be a confluence of month-end portfolio rebalancing and weaker economic data expectations in December.

Oil markets

The crude markets' reaction to OPEC headlines was of a "cut and run" variety as WTI slid back below $45. How to interpret rumors is open for debate; sure, it could be a bargaining ploy, but it screams of discord within the ranks at a level far greater than most had believed and brings future compliance into question.

The fact that this spat has the entire global oil complex sitting on the edge of a razor blade in the face of a second wave Covid-19 lockdown demand slump is particularly problematic. All the noise strongly suggests that since the Russia/Saudi Arabia price war, this is one of the most contentious OPEC meetings, with UAE fiercely opposing an extension and the killing of Iran's most senior nuclear scientist suggesting that reaching an agreement will be difficult. 

Even although it’s too early to draw any conclusions – and even before the Saudi headline broke – oil remained under top-side selling pressure on any push above Brent $48; the market is hopeful the disharmony in the ranks is resolved during the formal meeting today. Still, traders remain doubtful that an extension of current cuts would be a significant positive catalyst given it’s already baked into consensus; 73% expect at least a three-month extension, according to a Bloomberg survey.

Currency markets 

The Euro 

The US dollar is stronger today after some of the highest-selling USD month-end volumes in the WMR fix seen since Jackson Hole (27AUG). Double top at EURUSD 1.2004/16 + big level down here in USDCHF (0.9000) + USDCAD held 1.2950 again, for now, it seems. I don’t think the Fed will add accommodation, so it’s hard to see why the USD continues lower into year-end.

Despite the market dearly wanting to sell the dollar, the EURUSD failed to break the key 1.20 level with any conviction. With the year-end approaching, some bullish Euro traders might wait until the new year to build directional positions. And some justifiable concerns may hold the Euro back as the issue of currency strength may re-emerge as a theme within ECB rhetoric ahead of its December meeting.

The Pound

GBP is directionless, and deservedly so given the mixed headlines surrounding prospects for a Brexit deal.

Gold Markets

It looks like gold got caught in the month-end trap following the EURUSD higher into the WMR fix, only to be summarily smacked lower postfix. Traders continue to monitor the $1,750 level where it’s expected more EFT flows will capitulate.