Although the immediate geopolitical risk of the Iran/US missile exchanges in Iraq has been put on the back burner for now, the issue will continue to rumble on. This is likely to be a drag on Treasury yields in the coming weeks however, for now the near term focus switches back to the trade dispute and to “phase one” again. On Wednesday, the US and China are expected to sign the first section of their trade agreement. Risk appetite is positive (the VIX hit its lowest in two weeks on Friday, whilst the Chinese yuan strength is at five month highs to drag USD/CNH under 6.90 this morning). The market is anticipating phase one to be signed, but when it comes to the US and China, anything could still happen. Although Treasury yields are hovering, elsewhere the risk improvement is showing through, with gold slipping back whilst the yen is also sliding and equities are supported. This the forex space, one big mover is a drop in sterling. There is an increasing number of Bank of England MPC members talking of the prospects of rate cuts. One of the more dovish members, Gertjan Vlieghe suggesting that he would likely be voting for a rate cut in the next meeting. This is the third dovish comment (alongside Governor Carney and Silvana Tenreyro) in the space of a few days.
Wall Street closed slightly lower in the wake of a drab Non-farm Payrolls report on Friday (S&P 500 -0.3% at 3265) but US futures are rebounding today (+0.3% currently). This has allowed Asian markets a bounce with the Nikkei +0.5% and Shanghai Composite +0.8%. In Europe there is a mild recovery with FTSE futures and DAX futures both around +0.1% higher today. In forex markets, there is a slight risk positive bias, with AUD and NZD higher, whilst JPY and CHF are mildly weaker. The big mover is GBP where key lurch lower on Cable by around half a percent has been seen. In commodities there is a drop back on gold and silver by over half a p