Where do we go from here ?

Stephen Innes SPI Asset Management

US stock market had its first loss of the week as technology companies and consumer products went south.

Overall earnings were quite bullish for markets, but there are the usual post earnings pessimism permeating markets that this is about as good as its going to get

But investors should also take note of surging oil prices and the possible inflationary impact they could have on sending the US yield curve higher, which could prove to be the markets undoing.

Oil Prices
Saudi Arabia with OPEC’s support is looking to draw a new line in the sand for Oil prices and added another level of intrigue to the already bullish narrative. Now whether this is merely noise or a valid bullish signal, I expect this debate to continue. But there is a multitude of the domestic reason for Saudi to chase this dream beyond Aramco IPO.

Back in the real world, traders are still revelling in yesterday’s EIA inventories data which were conclusively a bullish signal. While the market is trading off overnight highs it’s more likley a case of traders trimming positions heads of potential weekend headline risk.

The civil war in Syria and threat of Yemeni rebels targeting the region’s top oil exporter Saudi Arabia with rockets has traders paying the geopolitical risk premium which should keep downticks in check. And all the while oil investors are playing the waiting game for probable oil sanctions against Iran.
All this makes for a compelling list of bullish narratives.

Gold Prices

The uncertainty over geopolitical risk and trade war tension has moved to the back burner this week and has made for a less compelling argument in the gold market. Traders are rehashing old topics amidst reasons to stay long into the weekend, but drawing few if any conclusions

Unless unexpected headlines hit the markets, we’re likely to remain within tight trading ranges but perhaps gravitate to the lower end of the spectrum as traders pair back long positions ahead of the weekend

The Euro

A quiet 24 hours for EURUSD, as the EURUSD seems exceptionally fluid on a 1.24 handle but lacking in momentum in either direction.

The Japanese Yen

Trump and Abe have come across as long-lost fraternal bothers and the markets; especially the Nikkei took notice. But despite the abundance of reason to go long USDJPY, the market remains exceptionally defensive knowing that one headline can upset the apple cart

The British Pound

Flip Flop tick tock, BOE Carney walked back all the hawkishness suggesting interest rates will go up over the next few years but gave no specific timeline which caused anyone who was banking on a May rate hike to head for the exits.

The Malaysian Ringgit

$Asia continues to trade on mixed themes, but the Ringgit remains exceptionally muted due to the building election risk. But with currency markets, including G-10 mired in sideways activity it’s unlikely we will see any significant shift in the local note today.

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.

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