Markets sways to the rhythm of the US-China caper
Bloomberg headlines hit the wires overnight informing markets that China’s impressive delegation had finally landed in DC ahead of highly anticipated US-Sino trade talks set to start today, October 10. Equity markets, saluting the developments, were buoyed by the news and kept a steady bid through to late NY. S&P500 Futures settled around 2,920 while ASX Futures failed a re-test of 6,500 remaining upbeat at the 6,550 mark. Some other headlines released in the last 24 hours have also helped balance the mood, while adding to the manic-depressive list of soundbites seen throughout the week which I covered in detail yesterday.
- FT: China offers to buy US extra goods to ease trade war – positive
- Reuters: China could increase agricultural purchases – positive
- Bloomberg: China open to small trade deal if Trump eases tariff threats – positive
However, defensive positioning across FX and equity markets is still present as a portion of the market looks to downplay the expectations for a meaningful breakthrough. A Reuters report suggested China might have “lowered expectations for significant progress” after the US blacklisted 28 Chinese firms. If China do come out ready to negotiate in good faith or as one FT source put it – “comes with real offers, it’s not an empty visit” – then markets will take that as a positive sign and lead risk assets higher. But judging by how the last two years of talks have played out, it’s still highly uncertain with a broad range of potential outcomes.
Bearish JPY, AUD, NZD, CAD
The way USDJPY and commodity bloc currencies (AUDUSD, NZDUSD, USDCAD) have been trading captures the uncertainty of US-China trade talks. USDJPY made an intra-week high last night getting as far as 107.6 but was quickly pulled back to 107.4 levels. There’s technicals and fundamentals to support USDJPY bearishness in the weeks ahead. Earlier strength seen in commodity bloc currencies is also falling over.
FOMC minutes see a minor USD sell-off
The release of September FOMC minutes saw AUD, NZD and JPY currencies climb but not to great effect against the Dollar. The minutes didn’t cause much change in Fed October rate cut expectations currently implied at a 77% probability given much of the language has been seen before. Markets will be hanging out for more details around the size and duration of the Fed’s open market operations (OMOs), likely to be discussed in the near future.
AUD data up ahead but ignore
Elsewhere, a couple of secondary data points arrive at the doors of local Aussie traders. Given more pressing US-China events and yesterday’s mute reaction to the sluggish Westpac Consumer Sentiment print, however, it’d be wise to not read into these too much for the time being. For housekeeping, Aussie Oct. Home Loans m/m is due out at 10.30am AEST with consensus at 3.6%; prior 5.0%. While, Aussie Oct. MI Inflation Expectations will hit the wire at some stage today; prior 3.1%.
