Intraday Market Thoughts

Geopolitics Join Trade Talks

by Adam Button
Oct 9, 2019 15:01

Tuesday's speech from Fed Chair Powell is currently being displaced by Turkey's military operations in Northern Syria and the lead up to Thursday's resumption of US-China Trade Talks. This means more swings in indices and no clear trends in FX. US crude oil remains well below the 54.00 cap ahead of inventories.  far frBut it's worth mentioning Powell's speech ahead of this evening's minutes release of the September FOMC meeting. The Fed put may finally be reversing on markets as Powell showed some reluctance to cut rates in the event that geopolitical conditions stabilise. The yen and franc are the weakest currencies of the day as indices find a floor for now. The pound remeains weak as the message from the EU-UK noise is increasingly pointing to no-deal one week ahead of the UK-EU Summit.

نشاط المؤشرات و هدوء العملات فيديو للمشتركين

Fed chair Powell mentioned 'data dependence' seven times in his speech on Tuesday in a strong hint that policymakers aren't as certain about cutting rates as the 77% chance priced into October and 45% chance of two cuts before year end.

One major factor that the Chairman highlighted was geopolitical risk and he's undoubtedly referring to US -China trade. Should there be some kind of positive conclusion, or even a face-saving punt down the road, it may not be the positive risk event that markets are hoping for because the Fed may pause.

On the flipside, if talks break down, risk trades will certainly be hit hard.

That leaves a negative skew ahead of an event that's largely binary, with commodity currencies particularly vulnerable. The market sensed that on Tuesday and it reacted to more signs of unease between both sides, including a Chinese report saying that Beijing could leave early.

The S&P 500 fell 43 points and commodity currencies softened.

Powell also touched on balance sheet expansion and unambiguously highlighted that it's not a new QE program. That may be debatable but the important point is that the Fed doesn't consider it to be easing or a reaction to anything in the economy. We may hear more about what's coming in the FOMC minutes due at 1800 GMT.

Act Exp Prev GMT
Fed Chair Powell Speaks
Oct 09 15:00
BoE Gov Carney Speaks
Oct 10 9:20
FOMC Meeting Minutes
Oct 09 18:00

Latest IMTs