Oil aboard!
By Vincent-Frédéric Mivelaz
Crude prices have bounced off a mid-February low of $58.23 per barrel, sending both West Texas Intermediate and Brent futures sharply higher (+16.01% and +20.17% from February low). We expect futures to converge towards 70.70 and 75.90 in the short-term. And they will keep climbing, pushed by the political crisis in Venezuela plus the possible US withdrawal from the Iran nuclear deal this week. Shanghai crude futures are also strong, trading at CNY 454 (USD 71.42) and reaching a historic high since their start in March 2018.
Confusion in forex
By Peter Rosenstreich
FX markets start the week directionless. EUR/USD has already retraced gains of Friday. US payroll gains were surprisingly low and unemployment fell to 3.9%: this encouraged equities but not USD bulls. The subdued jobs growth lowered the risk of quickened rate hikes by the Federal Reserve, and pressed the front-end of the US treasuries, which supported tech and financial sectors. Commodities have gone positive, drive oil prices to $70 per barrel and boosting commodity currencies.
The UK and New Zealand central banks are expected to hold rates, Japan and Sweden will publish monetary-policy-meeting minutes. Perhaps the most meaningful data will be inflation from the US and Switzerland.
We remain side-lined on the current USD rally, as the rationale remains elusive. Overly short USD positive has been cut, while interest rates correlation is inconsistent with pricing patterns. In the G10, only the GBP is now driven by changing monetary policy. The USD breakout of its 3-month range suggests a stronger correction is in the making. Deadlines loom for the Iranian nuclear deal and President Trump's attorney, Rudy Giuliani, has warned that hush money might have been paid not just to Stormy Daniels, but other women as well. As midterm elections get closer, political chaos in the US will become more important. Meanwhile, in Turkey, political instability is ramping up.
US – China tensions hits the CNY
By Vincent-Frédéric Mivelaz
US-China trade talks could pound the yuan, which would be much weaker and volatile if its trade surplus shrinks. Negotiations of US Treasury Secretary Steven Mnuchin and Chinese premier Liu He on Friday confirmed a rough ride for both nations, who are trying somehow to reach a win-win agreement – unlikely as long as both nations refuse to give as well as take. China’s Q1 current account balance of USD 28 billion (prior: USD + 62 billion) was a long-term low, suggesting smaller surpluses as long as bilateral tensions continue.