Risk appetite rose on Monday as investors turned more optimistic from upbeat early earnings reports while the Middle East conflict remained constrained. As policymakers reiterated the “peak” narrative, the dollar took the backseat, with gold and oil also taking a break.
Chart: WTI
Earnings exceeded expectations for the second session in a row, boosting risk appetite despite rising yields and geopolitical fears. The US dollar dropped, also struck by Federal Reserve Bank of Philadelphia President Patrick Harker, as he repeated that the Fed should not hike more at this point as inflation has eased. Meanwhile, the Empire State Index turned negative. Risk appetite saw gold falling along to bring the $1900 handle back into focus unless bulls reclaim $1930 an ounce.
Data from the Joint Organisation Data Initiative (JODI) showed Monday that Saudi Arabia’s crude exports fell to 5.58M bpd in August, the lowest level in over two years. Despite production and voluntary cuts boosting oil, Saudi Arabia and Russia have decided to continue the cuts into November. WTI took the backseat on Monday to rumours that the US plans to ease sanctions on Venezuela’s oil as soon as Tuesday, falling over 1% to $87.30 and exposing support at $85.5 a barrel. On the flip side, moving past $88.60/bbl could encourage bets to $90/bbl.
The Reserve Bank of Australia (RBA) considered hiking 25bps at its monetary policy meeting on Oct 3 but decided to hold as there wasn’t enough data to warrant a rise. Despite expecting inflation to reach the target range by late 2025, it may consider hiking if inflation persists. The market thinks there is a 25% probability of a hike as of Tuesday. Aussie remained bid near 0.6355 after rising 0.68% to 0.6342 on Monday, exposing 0.6377 while above 0.6333.
Country Garden will default if it fails to make a $15M coupon payment by Tuesday after warning last week about its inability to make offshore payments. The company has issued nearly
$6B worth of offshore loans, with failure to pay having broader implications beyond China. The risk-off event could impact Asian bourses, with Nikkei indecisive near 32k early Tuesday and after a 2% drop Monday at risk of revisiting 31500 and perhaps lower. Peak resistance is seen at 32580.