Markets Hesitant as US Makes Nice

The market has taken comfort in less-hawkish US gestures towards Iran and China but might be mistaking a pause for peace. The Swiss franc was the top performer Monday while the pound lagged. US CPI is due up next. keep an eye on US earnings season and the somewhat hesistant showing in global indices, which were initially as low as -1% earlier in Europe.  A new trade was issued for Premium susbcribers, doubling up on a trade opened back in November.

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Chinese officials were greeted with a gift as they arrived in Washington ahead of Wednesday's phase one trade deal signing ceremony. The US Treasury removed the 'currency manipulator' designation that was placed on China in August. The initial move didn't fit within the framework of the rules and there were no repercussions but Beijing may see strong symbolism in the move and it sets a positive tone for meetings.

It also set a positive tone for risk assets as the S&P 500 rallied 23 points to a fresh record high. Tech continues to lead the way including China-sensitive Apple. Every tick higher raises the risks of a sell-the-fact trade after the signing. Economic data was light but Fedspeak emphasized that policymakers are firmly on the sidelines.

The Iran front has also cooled but non-stop leaks from US security officials highlight that the assassination of Soleimani was pondered long in advance. That may prompt other Iranian or Iranian-backed commanders to hit first rather than waiting to be targeted.

In both the China and Iran case, the temperature is currently falling but that could easily reverse. Talking tough is a hallmark of US elections and at the very least that will put Iran and China on edge.

Looking ahead, the US CPI report is due at 1330 GMT and expected to show prices up 2.4% on the headline and 2.3% ex food and energy. This report is running much hotter than PCE overall but average hourly earnings rose just 1.1% in the most-recent report. One line that has skewed recent releases is variability in used car prices so the market will be quick to strip that out if it's out of line.