DXY firmed a little last night as EUR softened:
The Australian dollar reversed downwards against DMs:
But not so much as EMs:
Oddly, gold, which has been a reliable buy in trade frictions, sank:
Oil was roughly even:
Copper firmed:
Miners fell:
And EM stocks:
Junk did better:
All bonds sold modestly:
Stocks softened:
Westpac with the event wrap:
Equities stabilised on comments from US White House adviser Kudlow that US-China talks could be productive, that the risk of delisting Chinese companies was not on the table, and that Chinese delegates were still due to arrive in the US on Tuesday.
FOMC member George, who dissented against the rate cuts in July and September, said the moderation in growth this year has been in line with her outlook, and reiterated the economy remains in a good place, although she could revise her stance if she saw a decline in consumer confidence.
German Aug. factory orders fell -0.6%m/m and -6.7%y/y (est. -0.3%m/m, -6.4%y/y) providing yet another example of the recessionary pressures at the core of the Eurozone.
Event Outlook
Australia: Sep NAB business survey will be closely watched to see if tax offset receipts are starting to have an effect on activity. The Aug update continued to show below average reads for both conditions and confidence.
US: Fed Chair Powell speaks on “Data Dependence in an Evolving Economy” at the NABE conference. Other Fedspeak involves Evans in Chicago.
It’s all trade scuttlebutt all of the time now. Via Sinocism:
PRC Vice Minister Liao Min is in DC leading deputy-level trade talks in advance of Liu He’s arrival for the talks this Thursday and Friday. Today’s White House statement on the upcoming talks said:
The two sides will look to build on the deputy-level talks of the past weeks. Topics of discussion will include forced technology transfer, intellectual property rights, services, non-tariff barriers, agriculture, and enforcement.
Bloomberg reported over the weekend another version of the story that the Chinese are narrowing the scope of the trade talks:
In meetings with U.S. visitors to Beijing in recent weeks, senior Chinese officials have indicated the range of topics they’re willing to discuss has narrowed considerably, according to people familiar with the discussions.
Vice Premier Liu He, who will lead the Chinese contingent in high-level talks that begin Thursday, told visiting dignitaries he would bring an offer to Washington that won’t include commitments on reforming Chinese industrial policy or the government subsidies that have been the target of longstanding U.S. complaints, one of the people said.
Will President Trump accept a lesser deal? His proxies say no, but no one in this town other than Trump has any idea what he will do. There are pressures on both sides that show the logic of an armistice-like deal that includes a standstill on new tariffs, more agricultural purchases, and yet another framework for negotiators to work towards a President Trump-General Secretary Xi meeting, this time at the APEC meeting in Chile November 16-17. Will that happen? I have no idea, and am not really looking forward to all the tweets, leaks, scoops and volatility over the next few days…
Amen to that. RaboBank is confident of one thing only:
Bloomberg reporting that Chinese trade negotiators arriving in the US this week are apparently showing reticence to address any of the structural causes of China’s trade surplus (i.e., subsidies and non-tariff barriers, etc.) because they feel Trump is weakened and hence desperate for a deal. There should be no surprise on the Chinese refusal to address its structural economic model: that is something I have reiterated would be the case time and again, and is the key reason why we do not expect a real deal to be done. So no change there.
However, regrettably this again underlines that Beijing is about to make another epic miscalculation if so. As noted, Trump ALWAYS escalates when put under pressure, and has never shown anything so far but a tendency to raise tariffs when disappointed. Recall that there were reports his first instinct when China walked away from trade talks back in May was to double the 25% tariffs to 50%, before opting to move to 30% instead. If China thinks Trump is going to crumble now just because he faces possible impeachment, they are about to get a very nasty surprise – and hence so are markets. This morning China is still closed for the last day of Golden Week, but when it is back in force, expect yet more fireworks if those headlines are correct. Of course, China believes it has all the answers to the trade war: pigs the size of polar bears: Sino-Soviet gigantism as a cure-all once again.
For those who think China is fully in control of this whole process and it is the US who is flip-flopping–and there are many in that camp–consider how well Beijing is managing the situation with Hong Kong. Friday’s decision by Hong Kong CEO Carrie Lam to introduce British colonial era emergency legislation in order to (initially) ban the wearing of face masks has seen days of protests and chaos, the entire MTR network shutdown for the first time in 40 years, bare supermarket shelves, and queues at ATMs – as well as showing the new law is unenforceable. As the South China Morning Post states worryingly: “Anti-mask law effectiveness is in doubt. Now Hong Kong is on the brink and we will all go down with the ship” In short, an epic miscalculation risks playing out.
Meanwhile, rumors abound that Turkey is close to invading north-eastern Syria, where US troops are located among Kurdish forces who were instrumental in defeating ISIS. We have been here before but pulled back from the brink: will that happen again? Yet what are the multi-dimensional consequences if Turkey does move in this time? And what are the longer-term global consequences if Turkey indeed moves in and there are no short-term consequences?
For markets the warnings should be clear: try to calculate carefully for epic global miscalculation.
For example, on Friday we saw Hong Kong retailers’ shares rise when the face-mask ban was initially announced: how did that work out over the weekend?
For another example, we recently saw global yields spike – a move we have since seen largely reversed: how did that sell-off work out for many bond bears? Lower for longer until we go through the Looking Glass, still seems the order of the day.
And we continue to see efforts to short USD, yet the underlying power of the dollar is evidenced yet again today not just by this risk-off backdrop, but by China pulling out of a USD5bn energy deal in Iran under the threat of US sanctions. Yes, the fundamentals of the US look weak in isolation, but everyone else’s look worse: how is a short USD position, especially vs. EM FX, going to work out for you?
That’s not a long AUD story.
