Markets
US equities were a bit weaker on Monday, with S&P down 0.3% amid light northern summer volumes and US10yr yields down 8bps to 2.57%. But oil was a significant casualty overnight and closed down nearly 4 % after European governments delayed plans to restrict insurance provision to tankers carrying Russian crude.
It looks like the downturn in equities may be related to US House of Representatives Nancy Pelosi, with media reports saying that she is, after all, expected to visit Taiwan. After grinding higher through much of the London session, US socks have erased all the gains and some throughout the North American trading day. So with headline risk out of China and Ukraine. Right now, the US Bond market could be seen as a safe harbour.
Indeed, price action slumped across macro assets due to concerns about the potential US-China escalation, and risk could deteriorate quickly.
Risk is mounting. The Biden administration is trying to downplay the tension between US and China. But as Pelosi is almost sure to visit Taiwan on Tuesday, now it is on China's hands to see if the situation escalates. According to local media, one possible response is that China will send fighter jets to fly over the island in the next 48 hours.
China's onshore investors are not overly concerned and do not think there will be a war but believe it will be more war games "action." It could be little more than a tempest in a teapot still; international, and Taiwan investors are pretty concerned.
ISM manufacturing was better than feared and helped the tape to recover from overnight Pelosi jitters. UST yields continue to move lower on the long end with the curve, unfortunately, flattening further as a result. The peak Fed hawkishness narrative continues to gain traction, with fed funds futures still implying a Fed pivot in March 2023, but at a lower rate than prior, with peak fed funds at around 3.30%
Whether the Fed Chair intended it or not, his comments last week, framed dovish by a weak US GDP, seem to have been interpreted as signalling a 'pivot' of sorts on the time and pace to the top of the rate hike cycle.
It is clear that many of my colleagues out there don't believe in the recent rally – but are still asking when and what to buy. And with "Fed pivot" overrunning the markets lexicon, I'm sure folks have been forced to chase. The key for most remains the Fed.
I've been trading this instrument for decades and have never seen sentiment towards the S&P 500 1,000-point spread wide. Ask macro traders what they are positioned for, and the answer comes back as 3,500. Ask what they expect is possible, and it's 4,500.
So with everybody being a momentum player these days, the question is: how long can this rally last, driven chiefly by positioning and systematic buying?
Oil
Oil traded over 4% not just because of the Taiwan worries but also on the back of ongoing China economic woes.
China is always a big worry, but it has a solid energy security program and continues to buy crude through thick or thin. Although China is not consuming as much as it was, month-over-month demand is improving.
Libyan production has reportedly recovered to 1.2mb/d from ~860kb/d last week, following the lifting last month of force majeure resulting from protests and militia activity that led to the closure of several major fields and export facilities. And while few are willing to price in stable Lybian output at the current level, the rebound in production weighs slightly on the oil price.
Also negative for oil in the near term is news that European governments are delaying plans to restrict insurance provision to tankers carrying Russian crude. Insurance restrictions would likely have limited Russia's ability to redirect flows away from Europe toward Asian buyers (notably China and India), who have significantly increased purchases from Russia this year. So the physical brokers are then forced to find a home for more Middle East crude than they had expected.
SPI Asset Management provides forex, commodities, and global indices analysis, in a timely and accurate fashion on major economic trends, technical analysis, and worldwide events that impact different asset classes and investors.
Our publications are for general information purposes only. It is not investment advice or a solicitation to buy or sell securities.
Opinions are the authors — not necessarily SPI Asset Management its officers or directors. Leveraged trading is high risk and not suitable for all. Losses can exceed investments.
Recommended Content
Editors’ Picks
![EUR/USD stays below 1.1100, looks to post weekly losses](https://editorial.fxstreet.com/images/Markets/Currencies/Majors/EURUSD/european-euro-coin-on-top-of-american-dollar-bill-11292130_XtraSmall.jpg)
EUR/USD stays below 1.1100, looks to post weekly losses
EUR/USD continues to trade in a narrow range below 1.1100 and remains on track to end the week in negative territory. Earlier in the day, monthly PCE inflation data from the US came in line with the market expectation, failing to trigger a reaction.
![GBP/USD struggles to find a foothold, trades near 1.3150](https://editorial.fxstreet.com/images/Markets/Currencies/Majors/GBPUSD/iStock-157771037_XtraSmall.jpg)
GBP/USD struggles to find a foothold, trades near 1.3150
GBP/USD stays on the back foot and trades in negative territory at around 1.3150 on Friday. The US Dollar holds its ground following the July PCE inflation data and doesn't allow the pair to stage a rebound heading into the weekend.
![Gold retreats toward $2,500 ahead of the weekend](https://editorial.fxstreet.com/images/Markets/Commodities/Metals/Gold/gold-bars-50657756_XtraSmall.jpg)
Gold retreats toward $2,500 ahead of the weekend
Gold stays under modest bearish pressure and declines toward $2,500 in the American session on Friday. The 10-year US Treasury bond yield edges higher toward 3.9% after US PCE inflation data, causing XAU/USD to stretch lower.
![Week ahead – Investors brace for NFP amid Fed rate cut speculation](https://editorial.fxstreet.com/images/Macroeconomics/EconomicIndicator/Employment/NFP/america-back-to-work-gm178972493-25143312_XtraSmall.jpg)
Week ahead – Investors brace for NFP amid Fed rate cut speculation
Here comes another NFP week, with investors eagerly awaiting the results as they try to discern the size and pace of the Fed’s forthcoming rate cuts. The weaker than expected July numbers triggered market turbulence, instilling fears about a potential recession in the US.
![Easing Eurozone inflation to back an ECB rate cut in September](https://editorial.fxstreet.com/images/Macroeconomics/Countries/Europe/Eurozone_countries/Eurozone/eu-flags-flying-at-the-european-commission-building-brussels-belgium-24759579_XtraSmall.jpg)
Easing Eurozone inflation to back an ECB rate cut in September Premium
Eurostat will publish the preliminary estimate of the August Eurozone Harmonized Index of Consumer Prices on Friday, and the anticipated outcome will back up the case for another European Central Bank interest rate cut when policymakers meet in September.
![Moneta Markets review 2024: All you need to know](https://editorial.fxstreet.com/images/IT/Testing/Review/FXSBadgeCertifiedBackg_XtraSmall.png)
Moneta Markets review 2024: All you need to know
VERIFIED In this review, the FXStreet team provides an independent and thorough analysis based on direct testing and real experiences with Moneta Markets – an excellent broker for novice to intermediate forex traders who want to broaden their knowledge base.