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The action ramps up again and the bear won’t be disappointed, with S&P 500 futures taking a bath on the Globex open (10am AEDT) and spiking down to 2649 (-1.9%), before rebounding. The CME (exchange) putting in place measures to limit algo’s part orders, thus reducing the damage that could have materialised, has been noted and we could have easily been talking about another mini ‘flash crash’. Now that would have lit up an Asia trading session that is already on edge and pre-positioned for a barrage of event risk over the coming 48 hours.
As I said yesterday, the buyers just have no interest to step in front this market, so the bid was already out of the market anyhow and the short-sellers love this dynamic. Add in another reason to trigger volatility, with Huawei Technology’s CFO arrested in Canada, subsequently stoking renewed fears of a deterioration in Sino-US relations, at a time when bridges were being built. Either way, we see S&P 500 and Dow futures down over 1%, while China CSI 300 and Hang Seng are 1.6% and 2.9% lower respectively. The ASX 200 has come off its low of 5621 and is having a strong day, relatively speaking, with the market only 0.5% lower and showing yet again how much support there is into 5600.
The AUD is finding sellers easy to come by and sentiment towards the currency seems to have taken a turn. I was sensing a more protracted move higher on Monday, but when the facts change, I change and as traders, we react and adapt. The set-up on the daily chart looks progressively damaged, and we see price having broken through rising channel support, with a stochastic momentum crossover, and 0.7200 beckons in earnest. A break at support here and I would look for 0.7100 to 0.7150 to come into play. AUDJPY should test the 21 November low soon, and how price acts around here is key.
(Daily chart of AUDUSD)
(Source: Bloomberg)
The interesting dynamic for the AUD is the 8% chance of a cut priced in the Aussie rates market for May and June, and while May feels too soon for the Reserve Bank to ease, the appetite from Governor Lowe is just not there, the market is giving us a clear message. Recall, the AUDUSD and Hang Seng are moving almost in lockstep, with the 30-day rolling correlation between the pair is 0.94, which is just insanely high. We can also look at yield differentials in the bond market and see the premium demanded to US 10-year treasuries over Aussie 10-year treasuries has widened again to 41bp, and should this increase AUDUSD is really only going one way. The fact copper is 1% lower today is also providing a headwind, although the AUD has not been correlated to Aussie terms of trade for months.
(Orange – AUDUSD, white – Hang Seng)

The eyes on the market now fall on the OPEC meeting, where the talk on floors is that we get the public session starts at 10 am local time (8 pm AEDT), and after a two-hour closed session, we should hear the outcome in a presser at 1 pm local (11 pm AEDT). Both Brent and WTI crude are down smalls in Asia and traders are simply massaging exposures. The consensus expects a small cut of around 1 mb/d to 1.3 mb/d ongoing through to end-2019, so we can use this as a basic playbook, although one questions if the cuts are based off the October or the November production run-rate, as that matters. 
Of course, we need to understand how the cuts will be distributed between members and the belief that those involved will actually adhere to the set quotas anyhow. However, we live in an algo driven market, and it seems likely that anything less than 1million barrels will see Brent 3% lower or so, and naturally here we turn to see the jubilation in Trump’s twitter messages. While should we see, say a 1.5 million cut in production and a strong united front from those involved then oil should find good buyers and we may see risk sentiment in other markets stabilise.
The OPEC meeting aside, it’s a busy night on the US economic calendar, with data coming in thick and fast. On the docket, we see November ADP private payrolls (consensus 195,000 jobs), October trade balance (-$55b), weekly jobless claims (225,000) and November service ISM (59). We also get durable goods orders and capital goods orders and this is worth focusing on as both data points have been weak of late, giving rise to the focus on falling business spending intention. The USD continues to hold in above 97.00 (USD index), with EURUSD failing to find any buyers here, with price action showing traders having no appetite to push price into and above 1.1402 (29 November high) or through 1.1306 (30 November low). A break of 1.1402 and things get interesting around the 1.1450/60 level. That said, the move suggested by overnight implied volatility is 57-points on the session, so the market is not expecting fireworks.
Published by Chris Weston, Head of Research, Pepperstone