Markets adopted a mild danger-off mood overnight.
Overview: Slip slidin’ away
- US Senate passage of HK bill additional inflames China’s sensibilities
- Yuan, AUD, NZD, CAD all weaker
- ‘hawkish cut’ view of October 31st Fed FOMC validated by Minutes
- Not a lot on currently, Philly Fed the identified occasion highlight tonight
Slip slidin’ away, Slip slidin’ away. You know the nearer your location the additional you are slip slidin’ away – Simon and Garfunkel
There is tiny doubt that China-US trade headline fatigue has began to set in in the previous week or so, but market place are nonetheless displaying additional sensitivity to news stories that cast doubts on the likelihood of a close to term deal, in what ever kind. As a result overnight we have noticed the CNH, AUD, NZD and CAD all weaker, with each other with reduced US equities and bond yields. Very first this was on new yesterday afternoon our time that the Senate have comfortably passed their version of bill that would demand Congress to attest on an annual basis no matter whether Hong Kong nonetheless qualifies for specific administered status independent of Chinse influence. Then in final couple of hours, a Reuters report suggesting that a Phase 1 deal could not be completed this year has played with the grain.
‘May’ is a ’weasel’ word regularly employed by analysts to give themselves an out when they get their calls incorrect (as in ‘I only mentioned it “may” happen”) but China’s sturdy response to the HK bill news is a thing to be taken seriously in terms of how it impacts on the trade discussions (just as the earlier introduction of alleged human rights volitation with respect to Muslim minorities in the Xinjiang province introduced a new dimension a month or so back). A “Trump aide’ has just been out saying progress is becoming created on Phase 1 deal text, and reports yesterday have been that the two sides have been going back to exactly where they have been in May possibly when, recall, ‘90%” of a trade deal text was mentioned to have been agreed.
Who knows exactly where we land right here?
All we’d say for now is that we have a great concept exactly where markets will re-price tag if and when a Phase 1 deal get carried out and based on no matter whether it incorporate some tariff roll-backs, but what occurs amongst now and then is frankly anyone’s guess.
On to monetary policy
Minutes of the October FOMC Minutes just released show that most members believed that policy would be ‘well calibrated’ following their selection to reduce prices by 25bps, even though there is a comment that ‘some who voted for a reduce mentioned that it was a close call’. This tends to corroborate the market’s interpretation of the October 30th FOMC selection and surrounding Fed narrative of this becoming a ‘hawkish cut’. US interest price markets and the USD are tiny changed out of the Minutes. Move on.
It is been a light information calendar so far this week
The major information point of note overnight was Canada’s CPI, which printed in line with expectations at an unchanged 1.9%. This is close to the mid-point of the Bank of Canada’s 1-three% CPI target variety, so recommend that the bar to the BoC acting on its new located easing bias is nonetheless really higher, specially as – and as the BoC noted final week – wages development are at present operating above four% a year.
Even though CAD took a hit on Tuesday on some dovish BoC comment and news of labour strikes in the rail sector, most current weakness in CAD really should be noticed purely even though the prism of the hit to all commodity/development sensitive currencies on US-China trade deal doubts, down .four% in the final 24 hour, versus losses of .three% for NZD and .five% for AUD (so AUD sill just shading it as he most sensitive of this triumvirate to adverse trade headline). As a result AUD/NZD has broken beneath 1.06 for the initially time considering that late August.
GBP was tiny moved following yesterday’s Johnson-Corbyn Television debate, which a post-debate YouGov poll scored 51-49 to Johnson. A weaker AUD/GBP this morning is for that reason purely a function of a reduced AUD.
Coming into the final hour of NYSE trading
US equity indices are displaying losses of ±0.five% with the power sector the ideal performing, +1.1% thanks to a close to $two bounce back in WTI crude. This is on a reported two.3mn barrel draw on crude stocks at Cushing, Oklahoma and also the weekly EIA inventory stats. displaying a smaller sized 1.4mn barrel rise than the earlier reported, and much less trustworthy, API stats displaying a 6mn barrel inventory create.
US Treasury yields are at present about 5bps reduced at 10 years and 3bp reduced for 2s, immediately after European benchmark yields earlier completed mainly much less than 1bp down on the day.
Nothing at all of note throughout our time zone
Offshore, we get EZ customer self-confidence, ECB minutes, Bundesbank monetary stability and the OECD Europe outlook. The US has the Philly Fed survey and weekly jobless claims.
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