COMMODITIES: WTI Futures Reapproaching December's Cycle Lows
The trend theme in WTI futures is unchanged, it remains bearish and recent gains appear to have been corrective. Moving average studies are in a bear-mode position, highlighting a dominant downtrend. A resumption of the bear leg would signal scope for a move towards $53.77, a Fibonacci projection. Key short-term resistance is $61.25, the Oct 24 high. First resistance is at $58.41, the 50- day EMA. The trend structure in Gold is bullish and a sharp sell-off late December appears corrective - for now. The trend is overbought and a deeper retracement would allow this condition to unwind. First support at $4351.9, the 20-day EMA, has been pierced. A clear break of the average would expose the 50-day EMA at $4215.8. For bulls, a resumption of gains would open $4578.3, a Fibonacci projection.
- WTI Crude down $0.76 or -1.33% at $56.37
- Natural Gas up $0.15 or +4.51% at $3.5
- Gold spot down $30.62 or -0.68% at $4464.9
- Copper down $6.25 or -1.03% at $599.6
- Silver down $1.75 or -2.15% at $79.5755
- Platinum down $137.16 or -5.61% at $2310.42
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BONDS: A Look Into Why Japan Continues To Buy UK Paper
{JN}{GB} BONDS: The Japanese demand for UK paper that we flagged in a recent bullet is even more striking given the fact the 10+-Year JGBs continue to provide much higher yields (more than an ~80bp pickup) than gilts for a Japanese investor when FX hedging costs are accounted for.
- While not all of the flow may have been directed into gilts, there are several observations to note here:
- Basic portfolio diversification and the size of the gilt market may drive flows in that direction, unless we get a meaningful UK macro shock.
- Japan has plenty of its own fiscal risks at present, which could promote an increase in active offshore capital allocation.
- The recent flows into UK paper may not have been FX hedged and focused more on signals from the labour and inflation data, which deepened the market-implied BoE rate cutting cycle, in addition to the increased market confidence that Chancellor Reeves was set to deliver a credible Budget.
Fig. 1: JGB Yields Vs. 10-Year Gilt Yields FX-Hedged From The Perspective Of A Japanese Investor
Source MNI - Market News/Bloomberg Finance L.P.
EGB OPTIONS: Large Bobl Put Spread
OEF6 116.50/116ps, sold at 21.5 in ~11.56k.
CHINA: USDCNH Holds Steady in Face of Rising Geopolitical Tensions
- Tensions between China and Japan escalated again over the weekend amid allegations that Chinese military jets locked on to Japanese fighter aircraft. Commenting after the weekend’s events, Japan’s chief cabinet secretary Minoru Kihara said that Japan was aware of the incident and would deal with the situation calmly but firmly.
- Meanwhile, China’s foreign ministry said that Japan was making false accusations and said that Japanese jets had flown into its training area.
- Despite the tensions, the Chinese yuan remained resilient overnight, with USDCNH continuing to hold near cycle lows. The USD/CNY fix printed at 7.0764, marginally above expectations, and spot is little changed since.
- However, the increase geopolitical tensions between the two countries, coming on top of renewed property market concerns in China following the recent troubles at property developer China Vanke, are a reminder of potential challenges to the medium-term outlook. Recent highs for USDCNH just above 7.0800, are a potential upside focus point.
