New York open: Goldilocks must continue to embrace the markets
The S&P 500 is consolidated today as the market remains uncertain if the Treasury refunding requirement will trigger a liquidity event when the Treasury starts to replenish the TGA coffers. Still, until there are definitive signs in the WI market that money market funds are not buying the new T-Bills or forbid US CPI comes in scorching hot, risk sentiment could hold so long as Goldilocks continues to embrace the markets.
Despite the Caxin PMI rising further in May, the Yuan weakened, highlighting CNY's challenges as market sentiment around China's growth remains weak. And we think risks are skewed towards further CNY weakness unless there is a more robust and credible policy response than the property measure currently evident.
The final Euro area PMIs were revised lower today. Strong European sentiment has not been matched by actual activity recently. Hence the Euro has struggled to move above 1.07 and is likely feeling pressure from higher oil prices.
Not surprisingly, oil prices are higher, which is typical after any intervention. Some analysts are making a meal out of Saudi going alone. But even going solo, providing a 1 million bpd production cut backstop could bridge the gap until broader distillate demand picks up. Or oil inventories draw.
Regardless, macroeconomic data will continue to be the primary driver of speculative oil demand.
Oil prices are pushing higher off the interday low after the rise and beat in Caxim PMI services. One of the current bullish arguments is that service sectors will continue to drive fuel demand, offsetting the weaker industrial need for diesel and petrochemicals.
Author
Stephen Innes
SPI Asset Management
With more than 25 years of experience, Stephen has a deep-seated knowledge of G10 and Asian currency markets as well as precious metal and oil markets.
