Indices Heat up, USD Cools on Relations Thaw

Monday's equity rally was another confirmation that the year's dominant market worry is the trading relationship between China and the US. Improved relations and detente over the past 2 days have led to a rally in risk assets with the Australian dollar being the top performer and the pound trailing. Earlier today, BoE's Carney reiterated that interest rates will rise at a timid pace, while USD broadens selloff. Silver and the ppund are the highest gainers since Tuesday's Asia open. The DOW30 Premium was stopped out at 25050 (High was 25085). Yesterday's trade is +70 pips in the green.

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The US-China trade war going 'on hold' was cheered by markets as the S&P 500 climbed 20 points to 2733. China has offered to import more US energy and commodities in something we warned last week wouldn't be nearly enough to cut $200 billion from the US bilateral trade deficit. But if it's good enough for Trump and Mnuchin, then it's good enough for markets, at least for now.

It was instructive that the Australian dollar was the top beneficiary in FX. AUD/USD jumped to the highest since late April. Even cable showed some signs of life. After hitting a fresh 2018 low of 1.3391 it bounced back to 1.3433 to finish only narrowly lower.

The risk to the improved tone in markets is bonds. Treasury yields inched higher Monday but are now back within striking distance of multi-year highs. Keep a close eye on that market Tuesday.