Asia Wrap: Demi-rilievo

The first reaction of the EU to Boris Johnson's election as Conservative leader has been constructive, with Michel Barnier saying he will work with the new Prime Minister which has triggered a strong short-covering rally on the Pound, although more policy substance will likely be forthcoming in tomorrow Johnson speech which could provide another opportunity to reload GBP shorts

The Pound

Another UK minister jumps before they are pushed. Anne Milton who was prominent under both PMs Theresa May and David Cameron cabinet has resigned as Education Minister. It's another vote to stack against 'no deal', but also potentially for an election. But there has been an active "Boris offer" to the Pound today as post leadership political uncertainty is causing investors a high level of angst as policy uncertainty is at the extreme when it comes to the UK.

Stock markets

There has been a half bastion of support for global equity markets which are rising on optimism over possible new U.S.-China talks despite heightened Middle East tensions.

Oil

Geopolitical tensions provided a modicum of support for the oil price on Tuesday, with the US announcing sanctions on a state-sponsored Chinese oil trader for a deal involving Iranian oil and UK Foreign Secretary Jeremy Hunt announcing a European naval mission to provide safe passage for ships in the Persian Gulf region following the seizure of a British tanker by Iran.

But the markets remain held in check by global demand concerns suggesting that while optimism on the trade front is building, Oil traders believe a breakthrough in US-China trade is unlikely.

Traders continue to price in worse case scenarios around global demand, but only a half-hearted bid on supply concerns. Middle east smoke without fire is not causing any major geopolitical alarm bells to sound.

Unless a significant draw in the API report, the path of least resistance appears lower all things being equal.

Gold

Gold was experiencing a bit of a rebalancing act in Asia as investors unwound risk on the US debt ceiling agreement being signed.  However, much of US dollar strength was emanating from the Boris factor, which weighed like an anvil around both the Pound and the Euro neck.  But with the thought that all global central banks will eventually put QE on the table, it should be very supportive for gold markets for the rest of 2019; short term position rebalancing acts aside.

Currency Markets

The Fed blackout silence was interrupted by a loud "Boris" thud today. 

The Euro

There was an active bid for dollars today on news that an agreement on the US debt ceiling had been reached. Historically, this tends to boost foreign Bond inflows so it could trigger a meaningful rise in USD sentiment over the near term.

EURUSD is back to the critical support area where it was a few weeks ago. There has been a continuation of the overall trend of the past few days, with the market preparing more for a 25bp cut from the Fed next week and dovish ECB later this week. AS usual, it has been an arduously slow grid lower as the battle of the central bank doves un folds.

The Pound

Another UK minister jumps before they are pushed. Anne Milton who was prominent under both PMs Theresa May and David Cameron cabinet has resigned as Education Minister. It's another vote to stack against 'no deal', but also potentially for an election. But there has been an active "Boris offer" to the Pound today as post leadership political uncertainty is causing investors a high level of angst as policy uncertainty is at the extreme when it comes to the UK.

AUS and NZD

RBA Assistant Governor Kent said earlier today that the RBA was "a long way from unconventional policy", which was followed soon after by news that the RBNZ is looking to renew its un-conventional policy strategy. While the central banks are tacking in a different direction, although both policies will eventually align when QE is on the table, and it will come as most central banks start to follow the same dovish path.