Financial markets are starved for a bit of good news. China said it would hold trade talks by phone in two weeks, and the US saying it will delay some of the tariffs, has driven a wave of profit-taking across safe-haven assets. But the tariffs are not being delayed because President Trump has turned “Mr Nice Guy” it’s because big business has told the Whitehouse categorically there aren’t any alternative supplies.
And while some investors are relishing in this news, it’s a clear cut reminder of what happens when the Whitehouse starts messing around with global supply chains and suggests a trade policy that is constructed more on what amount of spaghetti sticks to the wall rather than any strategic game plan.
But with the USTR creating a so-called ” exempt list” they have signalled that a 10 % round of tariffs is going ahead on just about all but 50 billion of items that US big business can’t source elsewhere. And as far as the negotiations are concerned, have things become so tense that the September round is now on the telephone, rather than in-person??
Somehow, I don’t feel as comfortable as the 2 % rally on the S&P.
The risk rally saw the most crowed trades take the biggest hit, long gold and short USDJPY. But USDJPY ran out of steam towards 107.00 and gold found a solid a base below $1490. After the headline rinse, it’s probably time to repeat.
I was going to write about the stellar US CPI prints but looking at the bond curve reactions the markets is telling the Fed that” the data is irrelevant and if you don’t cut you are making a huge policy mistake.”
Go with the oil flow.
Brent rallied over 5 % on the US-China headline and while the dynamics of the move can be left open to speculation , what is not however is that oil sentiment is unmistakably connected to the hip of demand risk and just how quickly it can ameliorate is to the degree which there are any signs of progress on US-China trade front. On that regard, a whole lot of gloominess just got power rinsed from the markets on the USTR headlines.
Geopolitical and related risks including Hong Kong unrest and the ongoing slide in the Argentine peso kept up a robust safe-haven bid in gold touching a 6 year high helped along by falling US bond yields. But then the bulls were dealt a double whammy dose of negatively that saw gold prices melt nearly $50 top to bottom on the session. First, the US core CPI surprised to the upside for the second month and in a row sending bond yields higher. But the stop loss trap door gave way when Office of the US Trade Representative said that the US Administration would delay imposing a 10% tariff on a specific Chinese product. This triggered a robust correction in safe-haven assets as t. Equities jumped, yields rose, and the USD climbed while Gold haven bid virtually evaporated.
Positions were stretched with a lot of new money in play, so the market was very prone to any glint of risk positive news.
This article was written by Stephen Innes, Managing Partner at VM markets LLC
This article was originally posted on FX Empire
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