Global markets took an upbeat tone overnight

Fluid situations

Global markets took an upbeat tone overnight, preferring to concentrate on known knowns rather than known unknowns or unknown unknowns. Following Washington’s decision to place Huawei on a blacklist that could ban them from sourcing vital US technology if enacted, the street appears to have temporarily given up trying to predict the fluid situation that is US-China trade relations and concentrate on the here and now.

The here and now on Wall Street was strong US housing starts and sparkling results from heavyweights Walmart, Nvidia and Cisco Systems, suggesting yet again that despite the international noise, the US economy is still moving full steam ahead. Following rises yesterday in Europe and China, the S&P finished 0.90% higher, the Nasdaq climbed 1%, and the Dow Jones rose 0.80%.

European Union inflation and the US Michigan Consumer Sentiment are the heavyweight data points due this evening to finish the week. They could tell a tale of two halves, with the US consumer alive and well while EU inflation continues bumping along the floor. Here in Asia, the New Zealand dollar (NZD) continued its weekly fall following uninspiring PPI data this morning.

We have important data from two trading bellwethers in Asia today. Singapore released its Balance of Trade at 0830 Singapore time (SGT), while Hong Kong releases its quarterly GDP Growth Rate at 1630 SGT. The street will be looking for a continued recovery in Singapore’s non-oil exports and a bounce back in Hong Kong’s quarterly GDP growth following a slump of 0.50% previously. Like Australia and New Zealand, Singapore and Hong Kong have a massive correlation to China growth and the data will be closely watched to gauge the state of play in Asian trade. Poor prints could see a negative overflow to regional markets.

Currencies

The US dollar maintained its tight grip on markets overnight following a strong performance by Wall Street with the dollar index rising 0.27%. The Australian (AUD) and New Zealand dollars (NZD) continued their slump with tomorrow’s Aussie elections weighing heavily on the former. The AUD fell 0.50% to 0.6890 with the 2016 lows around 0.6830 now in plain sight.

The euro fell ahead of upcoming European elections to 1.1175 while the British pound (GBP) continued its terrible run, falling below 1.2795 on Brexit uncertainty. The chances of a feasible Brexit solution being achieved seem to be falling by the day, much like the governments chance of re-election – any light at the end of the tunnel being a train coming the other way.

Equities

Assuming no surprises from Singapore data or President Trump’s Twitter account, regional markets should follow Wall Street’s lead and begin the day on a positive note. The march higher will be tentative at best though with sentiment both incredibly cautious and fragile. With the weekend upon us and plenty of unknown unknowns that could occur over the weekend, volumes will likely remain light in Asia today.

Oil

Middle East tensions were front and centre overnight as Saudi Arabia unsurprisingly blamed Iran for the recent sabotage on its tankers and oil platforms. Brent Crude rose 1.15% to USD72.70 a barrel and WTI climbed 1.65% to USD63.05 a barrel. The repricing of geopolitical threats has merit, although the likelihood of open hostilities from or against Iran remains low in my opinion.

Brent Crude has technical resistance in the USD75.00 a barrel area and WTI nearby at USD63.50. With quite a lot of politics and supply crunches already built into prices and the spectre of trade wars looming large, the geopolitical temperature will probably have to ratchet much higher to maintain a sustained rally through the resistance levels.

Gold

Gold collapsed by USD10 to USD1,285.00 an ounce overnight erasing its entire week’s gains in one fell swoop. A strong dollar and bond yields creeping higher took their toll. However, a global sense of disbelief that the trade wars will be taken to the wire drained the safe-haven harbour, flushing gold out with it.

The fall overnight will be tremendously disappointing to gold bulls, as the yellow metal exhibited a rise up the stairs, down via the 10th-floor window price action. Gold remains in a broader USD1,280.00-1,300.00 consolidation phase. What was emphasised by the overnight price action was that gold’s fate is not its own, and unless there is some news today, Asian trading will likely be tepid at best.