Rioting in major US metropolitan neighbourhoods got pretty gnarly over the weekend. The market continues to struggle with the elevated level of market optimism versus the real economy, creating a psychological mismatch. And while the anarchy is the US street is likely to be a short-term phenomenon.
Still, since investors have not balanced well the psychology of the US being locked down for almost 3-month, Friday’s Non-Farm Payroll data could take on a more considerable significance, especially if it comes out worse than expected.
Geopolitical risk remains supportive amid a plethora of bullish for gold themes while anarchy in the street in the US could dent the nascent reopening recovery.
But gold investors are also taking note that early re-opening states are seeing a rebound in new cases. On May 30, California increased 3273 claims, the highest one day increase ever. Texas increased in 1714 cases. On the margin, the United States: three-day growth of infection numbers increased to 4.2%, the highest in 1-week (vs. 3.4% three-days ago).
Gold rallied right out the gate, going higher as anarchy in the streets is not only threatening to derail the re-opening optimism but could severely dent President Trump’s approval ratings, which will heighten US election risk and could drive more demand for gold.
There is a laundry list of negatives that continue to weight on President Trump’s approval rating. Trump’s job disapproval rate has risen since November and heightening US election risk, which will gradually factor into the overall US capital market sentiment and bad of the US dollar.
While the lifting of lockdowns globally and the further stimulus was keeping risk sentiment buoyant, until today that was as anarchy in the US raises its ugly head threatening to derail the risk recovery.
Euro gets a boost from relaxing lockdowns
The Euro continued to benefit from the relaxing in lockdown measure across Europe, and as the existential tail risk of a Eurozone, the break-up has evaporated. With the EU zone is moving closer to debt mutualisation, something the market has been craving basically since the creation of the currency, the Euro has been in demand.
Still, there has been some selling off the top – not unusually large. After the move over the last couple of days, the pair seems vulnerable to profit-taking, and with month-end rebalancing, approaching the market is getting increasingly nervous.
A dynamic week in Asia in the real sense of the word. This week could be another flashpoint for Hong Kong’s risk as of June 4 will mark the 31st anniversary of the Tiananmen Square protest. There is an annual Tiananmen vigil gathering in Hong Kong for the past 30 years. Large scale street protests in Hong Kong can happen, especially given the passage of the national security bill and rising US-China tension.
Mixed signals out of China on Saturday with manufacturing PMIs worse and services were improving.
Asia FX has been focused on the USDCNY fix, which has drifted higher over the past week. But the Fix has consistently come in close to expectations and capped USDCNH below 7.20so far. And for the broader market concerns, it is all about crossing key barriers where a break of 7.20 will be the truth sayer. But given the tamer reactions to the HK law by President Trump, we will see a pull back in bearish CNH bets even more so if China does not respond.
The Ringgit appears destined to be caught in the risk-on risk-off vortex over the short term. But with oil prices stabilising on Saudi Arabia and Russian pledge to remain compliant and a less combative response from President Trump to the HK law, local currency sentiment should gradually improve even more so if the US dollar continues to lose is a safe-haven appeal.
International markets analysis and insights from Stephen Innes, Chief Global Market Strategist at AxiCorp