You can imagine President Trump looking at himself in the mirror and saying, “I did that” as Wall Street rebounded yesterday. Trump has suggested that China is desperate for a trade deal and one could come “sooner than you think”. There is nothing overly insightful in that statement. Something that is consistent with where we are at in the cycle of this trade dispute (playing up the prospects of a deal before the next round of negotiations). But it is astounding that markets reacted so positively to this. Perhaps there is also a sense that the impeachment prospects took a hit as Trump released a transcript of a call with the Ukrainian president. The call was deemed not to contain the smoking gun the Democrats would have hoped for. Subsequently, yields have jumped and the dollar too. The question is whether traders now run with this sentiment improvement. Initial signs are cautious again this morning. No game changers of any substance and perhaps in the cold light of day traders are sceptical that the trade dispute can improve in any sustainable manner. Recent trends of risk aversion have certainly taken a hit but, for now remain on track. The reaction of gold and the yen will certainly be worth watching, whilst equities were turning increasingly corrective until yesterday’s shot in the arm for risk appetite. This morning, the sustainability of that influx looks shaky but will define the outlook of these trends which remain intact, for now.
Wall Street closed higher last night with the S&P 500 +0.6% (at 2985). However, US futures look tentative today -0.1% and Asian markets are also very cautious (Nikkei +0.1%, Shanghai Composite -0.5%). European markets also look cautious with the FTSE futures -0.1% and DAX futures also -0.1%. In forex there is a mild retracement of yesterday’s USD strength, with a mild underperformance of AUD being an exception. In commodities, the corrective momentum built on gold yesterday has looked to also unwind whilst oil remains under pressure.
It is another day for the US on the economic calendar. The final reading of US GDP for Q2 is at 1330BST which is expected to be confirmed at +2.0% (+2.0% in the prelim reading for Q2, Q1 at +3.1%). Initial Jobless Claims are at 1330BST and are expected to show numbers again around recent levels, at 212,000 (a shade up from 208,000 last week). Pending Home Sales at 1500BST are expected to grow by +0.9% in August (-2.5% in July).
Central bankers are again in focus, with ECB President Draghi speaking in one of his final engagements at 1430BST. The Bank of England’s Mark Carney speaks at the same event but at 1445BST. Arch dove on FOMC James Bullard is speaking at 1500BST, just to remind, Bullard was the dissenter on the voting that wanted -50bps in the last Fed meeting.