Trader thoughts - The long and short of it

Past presidential meetings have political leaders coming away with a positive view of relationships going forward. The same could be expected at the meeting with China’s president Xi Jinping later this week with President Trump at Mar-a-Lago golf club in Florida.

Market Data
Source: Bloomberg

It’s well known that China regards golf clubs as citadels of capitalist excess and corruption.

Aside from US politics, low volatility themes within equities markets continue to play out with the ‘VIX’ volatility indicator falling 5% to 11.8 overnight. US equity market continued to consolidate with the S&P 500 finishing with in a small five-day trading range at 2362.

From the FX markets view point it seems business as usual with the USD holding the key support level above 100 last traded at 100.57.

Australia’s Reserve Bank Governor Phillip Lowe gave his first keynote speech as Governor overnight and highlighted the issue of a 6.5% year-on-year rising household debt to the trailing 3% rise in incomes. With the RBA holding interest rates in yesterday’s announcement the Australian dollar broke down through the key support level of 76 cents.

With the current record number of institutional net long positions in the AUD, this has the potential to bring in some near term volatility.

We still have the swaps market pricing in five basis points (bp) of hikes over the coming 12 months (down from 8bp). However, to be fair, the market is sitting on the fence here. Judging by the sizeable 10bp drop in the Australia ten-year ‘real’ yield yesterday (7bp drop on nominal bonds), it seems the fixed income market saw the statement as more dovish at the margin. The daily AUD/USD options ‘straddle’ cost 36 points in premium yesterday, with the market simply saying no move at all was expected in the markets.

This seemed so low given the central bank risk, and buying volatility turned out to be a reasonable trade, although AUD/JPY shorts look better. A real battle to defend the December and March spike low – a close through here opens up greater downside.

Our market looks set for a positive open today with the SPI futures showing a 27 point gain from last close.

Momentum in the Australian 200 index remains positive, with the key 6000 still remaining as the key level for further gains. Gains likely in materials and energy, with BHP’s ADR +1.8%. US crude has seen a positive session (+1.7%) and the just released API inventory report showed a strong 1.8m barrel draw. This bodes well for tonight’s official number, with the market expecting a 70k barrel draw in oil and 1.53m draw in gasoline inventories. US crude looks like it wants to break back into former trading range and this is positive for risk in general.

Keep in mind we have ADP private payrolls at 10.15pm (consensus 185,000 jobs) and this will set the tone for Fridays NFP’s. Worth eyeing the services ISM too, which is expected to increase at a modestly slower pace.

In the commodities space, gold has moved higher overnight adding to the positive sentiment around the local producers.  

Denna information har sammanställts av IG, ett handelsnamn för IG Markets Limited. Utöver friskrivningen nedan innehåller materialet på denna sida inte ett fastställande av våra handelspriser, eller ett erbjudande om en transaktion i ett finansiellt instrument. IG accepterar inget ansvar för eventuella åtgärder som görs eller inte görs baserat på detta material eller för de följder detta kan få. Inga garantier ges för riktigheten eller fullständigheten av denna information. Någon person som agerar på informationen gör det således på egen risk. Materialet tar inte hänsyn till specifika placeringsmål, ekonomiska situationer och behov av någon specifik person som får ta del av detta. Det har inte upprättats i enlighet med rättsliga krav som ställs för att främja oberoende investeringsanalyser utan skall betraktas som marknadsföringsmaterial. 

Artiklar av våra analytiker

CFD-kontrakt är komplexa instrument som innebär stor risk för snabba förluster på grund av hävstången. 79 % av alla icke-professionella kunder förlorar pengar på CFD-handel hos den här leverantören.
Du bör tänka efter om du förstår hur CFD-kontrakt fungerar och om du har råd med den stora risken för att förlora dina pengar.
CFD-kontrakt är komplexa instrument som innebär stor risk för snabba förluster på grund av hävstången.