Donald Trump had the stage to lay out the path towards this “phase one” agreement between the US and China that has so dominated market sentiment in recent weeks. Instead of talking about when a signing event could take place, where and over what, he used yesterday’s speech as an opportunity to make a thinly veiled critique suggesting that China were “cheaters” in world trade. Although negotiators are close to an agreement, this was not the risk positive speech the market had been expecting and is a bit of a reality check which reminds the market of how the President operates (in case it had forgotten). It has also engendering what seems to be a building caution across major market again. Bond yields have fluctuated, but it is interesting to see other safe havens gaining ground. The Japanese yen performance is picking up, as is that of the Swiss franc. There has even been a rebound on gold starting to emerge. Furthermore, equities are looking for corrective today. If this is the case, are the bull trends on equity markets set to come under pressure? The one ray of light for the bulls has been the Reserve Bank of New Zealand which surprised pretty much everyone in standing pat on rates today (-25bps cut expected to +0.75%, +1.00% last). Apparently, previous moves to cut rates have left current monetary policy as appropriate. This has driven a big jump in the Kiwi dollar today.
Wall Street closed mixed last night with the S&P 500 +0.2% at 3092 last night, but US futures are giving this all back today, currently -0.2%. Asian markets have the implications of the Hong Kong civil unrest to add to their woes, closing weaker across the board with the Nikkei -0.9% and Shanghai Composite -0.3%. In Europe, the outlook is being dragged lower, with FTSE futures -0.5% and DAX futures -0.4%. In forex, a mixed look to majors, with lack of real direction for USD but the clear front runner being NZD which is over 1% higher today. In commodities, the risk averse outlook is coming through, with a mild rebound on gold whilst oil is slipping back by half a percent.
There is a big emphasis on inflation for the economic calendar today. UK CPI is at 0930GMT which is expected to see headline CPI slip to +1.6% in October (from +1.7% in September) whilst core CPI is expected to remain at +1.7% (+1.7% in September). US CPI is at 1330GMT and is expected to show little change with headline CPI expected to be +1.7% in October (+1.7% in September) whilst core CPI is expected to be +2.4% in October (+2.4% in September). The first day of Fed Chair Powell’s testimony to Congress comes with the Joint Economic Committee in the Senate at 1500GMT. Powell’s written testimony is followed by a series of questions.
Chart of the Day – EUR/CHF
There has been a shift back towards more risk averse currencies in the major crosses. This is leading to renewed deterioration in the outlook for Euro/Swiss. The market failed to build on the breakout above the September high and now corrective momentum is growing. Struggling under the old 1.1020 level throughout last week, another old October pivot level at 1.0970 has now see