DAILY REPORT : Wed 11 Apr 2018

MARKETS/MACRO: The 'risk on' trade returned overnight after Chinese President Xi Jinping cooling trade war fears in a speech at the Asian Boao Forum. The Dow Jones Industrial Average surged +428.90 points, or +1.79%, to 24,408.00, the S&P500 rallied +43.71 points, or +1.67%, to 2,656.87 and the NASDAQ Composite leapt +143.957 points, or +2.07%, to 7,094.30. The best performing sector was Energy (+3.32%), while the defensive REIT's ( -0.76%) suffered. European stocks were equally strong, with most markets rallying to month highs. The EuroFirst 300 index jumped +12.74 points, or +0.87% to 1,484.28 and the EuroStoxx 600 advanced +3.12 points, or +0.83% to 378.42. Regionally the FTSE100 inclined +1.0%, DAX +1.11% and CAC40 +0.84%. Crude oil prices surged higher following Xi's speech, with Brent pushing through USD $70.00 a barrel to reach its highest level since early 2014. Sentiment was also buoyed by reports that Saudi Arabia is now targeting USD $80 a barrel for Brent crude oil prices according to BBG. This news broke just as the Kingdom released a statement saying it plans to keep exports below 7 million b/d again in May. This will be the 12th month in a row that exports have been below this key target however. This bullish tone was further exacerbated by comments from the head of the IEA’s oil industry and markets division Neil Atkinson, saying oil inventories will be below their five year average 'soon'. In FX, it was a relatively quiet session with muted action in G10; the move in RUB still the focal point as the US sanctions continue to put serious pressure on the currency. Elsewhere, the AUD continued to trade well technically while benefitting from the underlying bid to commodities. The JPY sold-off, in-line with the rally in risk and USDCNH dropped through 6.30 post Xi and never looked back. Treasury yields pushed higher in the risk on environment with the U.S 10y yield increasing +2.19bps to 2.801% and the U.S 2y yield rising +2.86bps to 2.3069%.

Chinese President Xi Jinping on Tuesday promised to open the country’s economy further and lower import tariffs on products including cars, in a speech that comes amid rising trade tensions between China and the U.S. Xi also said China would raise the foreign ownership limit in the automobile sector “as soon as possible” and push previously announced measures to open the financial sector. “This year, we will considerably reduce auto import tariffs, and at the same time reduce import tariffs on some other products”, Xi said at the Chinese Boao Forum for Asia in Hainan province. They come amid rising trade tensions between China and the United States following a week of escalating tariff threats sparked by U.S. frustration with China’s trade and intellectual property policies. Xi said that China will take measures to sharply widen market access for foreign investors. China will also speed up opening of its insurance sector to foreign investors, he said.

PRECIOUS: Precious metal market focus remains on the consequences of recent Russian sanctions by the U.S, with palladium prices surging as a result. Russia is the world's largest exporter of the metal and the risk of further sanctions has helped propel the price higher (+2.5% yesterday). This is on top of the fact the metal has been in gross under-supply for the past 6 months. Support sits now at $900 (Fibonacci level), with a target now sitting at the 200 dma ($975). Gold performed reasonably well yesterday considering the general 'risk on' sentiment following President Xi's speech, slowly grinding higher throughout Europe and the U.S sessions. The yellow metal was sold off in Asia yesterday, following a brief spike right around the open of Tocom to around $1328. China however were sellers and the spot market quickly edged back down toward $1334 and then $1332 later in the afternoon. As London traders walked in however some modest demand began to creep in and the price slowly headed north. The metal remained fairly resilient despite Xi easing tensions over the China-US trade war and the metal continued to angle higher. Spec bids continued to push the market through $1340 towards the end of the session and we closed right on $1340. The precious sector has been given a boost on the back of rising base metal prices over the past days (Aluminium +10% in 3 days) and it looks set to continue, with interest picking up in upside options. Gold and silver, for now, remain within the broad range however and we expect good supply around $1360 and $16.80 respectively. A break of these levels though could see some shorts squeezed.

Another quiet day today for Asia, with the gold edging higher throughout the day. The yellow metal opened around $1340 and edged higher over the next few hours touching a peak of $1342.50 before the China open. Again the Chinese were on the offer with the premium a little lower than the previous session at between $6-8 over Loco London gold for onshore traders. Once the SGE opened the spot gold dropped back towards $1340 where it did a little work into the afternoon, contained to a tight $1 range. Silver followed gold for the most part throughout the day and the PGM's were flat following last nights impressive moves. In other markets equities were mixed with the Nikkei and ASX200 currently trading lower at -0.3% and -0.5% respectively, while the Shanghai Composite and Hang Seng are up +0.7% and +0.8%. Both WTI and Brent crude are currently down on the day -0.35% a piece at $65.32 and $70.77 respectively and the USD is generally softer against the G10, with the exception of AUD. Ahead today on the data front, U.S CPI data will take centre stage. We also have FOMC minutes and UK Industrial production and trade balance.

 

Although the information in this report has been obtained from and is based upon sources 1StopGold believes to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute 1StopGold' judgment as of the date of this report and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of an investment. This report does not consider or take into account the investment objectives or financial situation of a particular party.