“Thy Orb And Thy Staff They Comfort Me”: “Risk Feels A Bit Better Today!”

Yea, though we walk through the valley of the shadow of death, we will fear no geopolitical tail risk: for Donald Trump art with us; thy orb and thy staff they comfort me…

The orb has spoken and the word, apparently, is that we should focus on the positives even though, admittedly, the orb was unable to elaborate on exactly what those are.

Although we’re not seeing anyone buying hand over fist in equities, the mood was risk-on-ish from the word “go” on Sunday evening as USDJPY rose with 10Y yields and the dollar firmed.

“The dollar gains as stocks and Treasury yields rise after investors judge the recent selloff on U.S. political turmoil may be excessive given the backdrop of economic resilience and a potential rate increase,” Bloomberg wrote overnight. That drop you seen in the broad dollar around 6 a.m. EST likely stemmed from this headline:

MERKEL SAYS EURO IS ‘TOO WEAK,’ MAKES GERMAN PRODUCTS CHEAPER

That aside, some see the dollar selloff as overdone. “The Trump-related selloff was excessive and while wariness remains, the macroeconomic environment doesn’t seem to prevent the Fed from raising rates, which helps underpin the dollar,” Kengo Suzuki, chief forex strategist at Mizuho noted.

Meanwhile gold dropped initially after booking its biggest weekly gain since period to April 14. It recovered later in the session. “Gold rose on Friday as traders put on risk hedges over the weekend against a backdrop of a generally weaker U.S. dollar,” Jeffrey Halley, market strategist at Oanda Corp. in Singapore told Bloomberg by email, adding that “this morning we have seen some of that being unwound as the weekend passed mostly without incident.”

Well, “without incident” except for the North Korean missile launch, which wasn’t enough to derail the Kospi or the won, which put the brakes on a three-day skid. Investors, Bloomberg said, are “shrugging off the North Korean missile launch to focus on a rally in energy prices.”

Speaking of energy prices, oil’s up as traders seem to think they’ll be surprised by the duration of the announced cuts. “OPEC could surprise the complacent bears with longer duration and deeper cuts,” Nomura said in a note dated Sunday. Saudi Arabia says all producers now agree on extending the deal by nine months.

There is, of course, US production lurking in the background, waiting to pounce. “The market is gaining confidence from the agreement being adhered to and the material difference to the supply balance that’s expected over time,” CMC Markets’ Ric Spooner said before cautioning that “oil is unlikely to advance too far [as] higher, sustained prices run the risk of an increase in U.S. production.”

Ultimately, Stephen Innes, a senior FX trader at Oanda in Singapore. summed up the mood best: “Risk feels a bit better today.”

The one sore spot (well, again, other than the President of the United States being on the brink of impeachment for what amounts to high treason, Brazil plunging headlong into a fresh corruption scandal, and North Korea launching another missile) was the UK where the double-whammy of another “we’ll walk away from these negotiations” headline combined with a set of polls which showed the opposition Labour Party cutting May’s Conservative Party lead, pushed the pound below 1.30:

Here’s SocGen on that development:

In the UK, opinion polls show a sharp narrowing in the Conservative lead (from a huge 19% to sizeable 9%), while warnings that the UK could walk away from an exit deal if the final exit bill is too big don’t encourage optimism about negotiations that start in earnest after the UK election on 8 June. EUR/GBP is back above 0.86 (just) and a close here or higher today could build a base from which this cross can push higher, though if we are going to remain optimistic about oil prices, perhaps shorts in GBP/CAD and GBP/NOK are a better bet for now.

And finally, here’s a snapshot of global equities: