US Stocks are sharply lower at the end of Tuesday trade, while the US$ is mixed to higher after investors began to look deeper into the merits of the trade truce struck between the U.S. and China. Conflicting public announcements since the meeting and President Trump’s appointment of US Trade Representative Robert Lighthizer, a China hard-liner, as lead negotiator with Beijing have weighed on sentiment and have dampened the initial enthusiasm for the truce. Trump also said that “if no China trade is deal possible, ‘I am a Tariff Man’, not helping sentiment!.
Aside from the US/China story, there is much going on elsewhere. On Tuesday, yields on 2-year and 3-year US bonds held above the 5-year yield for a second day, while the benchmark US10Y yield hit its lowest since mid-September (exp 2.883%) as demand for longer-dated Treasuries rose on bets of an approaching economic slowdown. The 30Y has also collapsed, from a November high of 3.466%, to currently sit at 3.173%. US Fed voter and moderate, Williams, said that the economy remains on a strong path and that further rate hikes over the next year make sense although adding that there are risks on the horizon. Non-voter Kaplan said “we are in a more challenging period in our efforts to normalise monetary policy
Today’s Brexit headlines caused Sterling to skid to its lowest level since June 2017 (1.2657) after UK PM Theresa May’s government was found in contempt of parliament for refusing to release its full legal advice on Brexit.
In the markets, US stocks are down by around -3% at the time of writing, heading into the NY close, while the US$ is missed. The dollar is trading on a firmer against the Euro, Gbp, Aud$ and Nzd, while US$Jpy is heavy as safe haven demand returns to the market.
Looking ahead to Wednesday, the $Aud will see a bit of action, with the Q3 GDP (exp 0.6%qq, 3.3%yy) the main focus, while the AIG Performance of Services Index and then the Japan and the Caixin China Services PMI are also due.. Later on in Europe it will be the EU Retail Sales (exp 0.2%mm, 2.1%yy) and the Services/Composite PMIs that traders look to for guidance, while Mario Draghi will also be speaking at an ECB event in Frankfurt. The US will be thin although the Fed’s Quarles will be speaking.
Economic data highlights will include:
Wed: NZ ANZ Commodity Price Index, Australian Performance of Services Index, Q3 GDP, Caixin China Services PMI, Japan Services PMI, Mario Draghi Speech, ECB Non-MP Meeting, EU Services/Composite PMIs, EU Retail Sales, US Fed’s Quarles speech
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