Markets have been gradually taking less and less out of the positive newsflow on the trade dispute as expectations have built for a move to “phase one”. President Trump notes that the two sides are into the “final throes” of a deal, however, the lack of market conviction would suggest an increasing need for a handshake picture between Trump and Xi to drive decisive positioning. Perhaps also there is a degree of consolidation in front of Thanksgiving (which tends to reduce liquidity for both the Thursday and Friday) but there is increasingly a lack of direction on bond markets. The 2s/10s spread is seen as a gauge for sentiment (widening being risk positive) but has been drifting sideways in recent days. Subsequently, we are seeing a quieter drift on forex majors, but with a dollar positive bias. There are some key levels being tested/eyed amidst this drift (a look at $1.0990 on EUR/USD, into the 109.00/1090.50 resistance on Dollar/Yen, and $0.6765 on the Aussie. However, whether the dollar bulls have the conviction for a breakout in front of Thanksgiving will be interesting. Furthermore, given the lack of liquidity in the coming days, could this drive false breaks of these levels? One area to see unabated positivity in all this though is Wall Street, which continues to pull into all-time highs. The contrarian may wonder about “buy on rumour, sell on fact”.
Wall Street closed with solid gains last night with the S&P 500 +0.2% at 3145, whilst US futures are a tick or two higher again today. There is more of a mixed look to Asian markets, with the Nikkei +0.2% and Shanghai Composite -0.2%. Cautious optimism is the early feeling in Europe, with FTSE futures +0.1% and DAX futures +0.1%. In forex, there is an edge of USD strength forming amidst major markets lacking real conviction. It is interesting to see GBP again one of the more active currencies, underperforming today. In commodities, the dollar gaining today is a mild drag across the precious metals with gold and silver marginally lower, whilst oil is also slightly lighter.
Once more there is a big US emphasis on the economic calendar today. The first revision to Q3 US growth, the US Prelim GDP is at 1330GMT is expected to show no change at +1.9% (+1.9% Advance, +2.0% final Q2). The core Durable Goods Orders (ex-transport) at 1330GMT are expected to show marginal growth on the month of October at +0.1% (after a decline of -0.4% in September). At 1500GMT the US Pending Home Sales are expected to grow by +0.8% in October (after a +1.5% growth in September). EIA oil inventories could be interesting this week with an expected drawdown on crude stocks of -0.3m barrels (after +1.4m barrels of build last week) after builds in nine of the past ten weeks. The Fed Beige Book is at 1900GMT and will help to paint a picture of the Fed’s economic outlook.
Chart of the Day – AUD/USD
Although risk appetite has been relatively positive in recent sessions, the Aussie has struggled for buying traction. We have subseq