There have been some interesting moves in the markets this morning, in what is the last trading day of the week and month. But it remains to be seen whether there will be further follow-through in these moves once we head into the U.S. session. After all, it has been a very choppy week and we wouldn’t be surprised if the markets were to reverse, especially the equities.
With the Trump Administration working toward zero Iranian exports by November, Libyan oil supplies at risk due to clashes with militias, and crashing supply from Venezuela, reports of tightening U.S. supply is keeping oil on edge. Crude oil price continued its drive, hitting $74 a barrel for the first time since that fateful OPEC meeting in November 2014.
After a strong start to this week’s trade, the U.S. dollar is on the back foot on the final trading day of the week, month, and quarter. The proximate cause for the buck’s weakness is good news overseas: specifically, the EU countries reached an agreement on migration, while the UK’s Q1 GDP was revised up by 10 basis points to 0.2% quarter-over-quarter.
Modern wars are fought with precision tactics and tools like drones, targeted strikes, and heavy reconnaissance to identify where the enemy is weakest. But, as any military historian will tell you, wars used to involve far more blunt tools, like catapults and trebuchets, to inflict maximum damage on the enemy; friendly fire be damned.
While the speed of selling has slowed down compared to the early part of the week, emerging market currencies have continued to show weakness in the early hours of Thursday morning. The Thai Baht, Malaysian Ringgit, Chinese yuan, Indonesian Rupiah and Indian Rupee are all trading lower at time of writing.
The most important factor in global markets right now is trade. Tensions heated up to start the week after a tweet from President Trump called for, “all countries that have placed artificial Trade Barriers and Tariffs on goods going into their country, remove those Barriers & Tariffs or be met with more than Reciprocity by the U.S.A”.
The Chinese yuan plummeted 3%--its lowest this year, hitting a six-month low against the dollar (USD). During the session, the yuan was down more 0.5% to against the USD for the third straight day in a row. There hasn’t been a drop this dramatic since China’s August 2015 devaluation where the currency fell 2.8% in just two days.
The recovery in the stock markets could not last long and by the close of play yesterday all of the earlier gains evaporated. Although equity indices opened higher in Europe this morning, they have since turned mixed with shares in Germany falling and UK remaining positive. U.S. index futures were still slightly positive at the time of this writing, but should Europe turn decisively negative, I can’t see why Wall Street wouldn’t follow suit.