As the Worm Turns

Oil Markets 

With oil markets languishing and pricing in the worst of worst-case scenarios around global growth and tariffs, Traders were caught entirely flat-footed and severely under positioned on several fronts.  Oil prices surged overnight as waves of positivity's engulfed the markets suggesting the worm just might be turning for beleaguered oil bulls.

In my cynical view, when it comes to OPEC + supply discipline, it's is all about price. So with prices languishing at the bottom of the current ranges,  OPEC and co continue to move closer to extending supply cuts as a precarious fortnight for oil markets has forced  OPEC + who have agreed to a meeting in July — suggesting that a supply cut extension is on the way.

And while the Trump tweet suggesting he had a constructive discussion with President Xi was the icing on the cake, but with a commodity market absolutely in need of some central bank stimulus, they now appear to be getting just what the doctor ordered. Specifically, a triple dose of liquidity is on the way after both the RBA and ECB are signalling dove well beyond markets expectations, with the Fed likely to follow suit. 

As for the Federal Reserve, we know an easing bias is coming but does the ECB front running policy open the door for a more dovish response for Chair Powell and company? It certainly opens the door of a Fed rate cut tonight, but yes, the odds of 50 basis point response in July looks stronger than ever. Any sign of a  Fed policy deluge is on the way could trigger one of the most significant risk revivals in some time!!

Indeed, the oil bulls are charging today!!

Gold Markets

The Gold rally was cut short by the surge in global equities as anticipation over the dovish global central bank policy continues to swell.

 But in another bullish show of force, Gold rallied despite a lower EUR. Gold is often positively correlated with EUR movements and a drop in the world's second reserve currency usually takes the shine of the yellow metal. But Gold remained supported despite the push through EURUSD 1.1200 as Traders remained focused on the chorus of central banks that are on the threshold of signalling even looser monetary policy. 

Indeed, Gold took its cue from lower US yields. The yield on the 10-year Treasury fell to a new low for the year, falling to 2.01% at one point as weaker US economic hard data supported Gold while also building a stronger case for the FOMC to act sooner than later. But then the thought of cheap and abundant liquidity also contributed to the Gold market undoing as equity markets too went party hearty which thwarted Golds investment demand and prices turned south but stabilised in the $1345 area into the Asia open.

Easing in trade tension

 An easing in trade tensions also weighed on Gold after President Trump said he would meet China President Xi at the G20 meeting and that negotiating teams could meet beforehand, but to say equity investors were euphoric is putting it mildly as the equity market, already trading favourably, had its best day in 2 weeks. Even if it is little more than a glimmer of hope, but the fact the two sides are talking suggests where there's a will there's a way.

US equity markets 

What's good for the Golden Goose (Gold markets) is good for the Gander (equity markets) Global equity markets surged after the RBA suggested more dovish shifts were on the way while ECB Mario Draghi who confirmed what was probably the markets worst kept a secret that the ECB was in the cusp of lower interest rates.. To say equity investors are turning euphoric at the thought of cheap and abundant liquidity could be the understatement of the year. 

Currency Markets

USDJPY jumped more than half a big figure off its lows earlier, to a 108.675 high, on US President Trump tweeting that he had had a "very good telephone conversation" with China's President Xi, with whom he "will be having an extended meeting next week at the G-20 in Japan". The pair have been headline-trading much of the overnight session.

FX markets have pretty much been on headline watch for the past 48 hours.

The de-escalation in trade tensions has triggered an unwind on trade war hedges especially in the CNH and by proxy lending support to a host of local currencies while higher Beta currencies like the Australian dollar are relishing in the afterglow of surging global equity markets.