Intraday Market Thoughts

Rare & Telling Trifecta

by Adam Button
Dec 4, 2018 14:41

It is rare to see the US dollar, stock indices and long bond yields all falling in concert. Could it be a telling sign of worries about global growth, especially as several yield curves are at or near inversion territory? The shine continues to come off risk trades late in a sign that markets are looking towards other risks. The New Zealand dollar was the top performer while the pound lagged.  It was the biggest percentage daily change since February 2016. What instrument did that yesterday & what it means for USD and EM? This is among the 5 USD signals in last night's Premium video.

USD-Yields-Stocks in the Red

USD bulls are on the defensive ahead of Wednesday's Powell testimony to Congress, where he could reiterate his stance about rates bieng just below neutral. Bond yields are pulling lower, expecially on the long end, reflecting the retreat in inflationary expectations while stocks are giving back some of Monday's gains especially among market reservations over the true sense of Trump-Xi agreement. 

The Trump-Xi meeting was a positive step and that was reflected in a 30-point rally in the S&P 500 Monday but the market had been up more than 50 points and the drawdown reflects many of the looming risks.

A key one is auto tariffs. Last week Trump floated the idea of import taxes on autos from outside North America and that issue may spring back to life once the glow of the China-US summit wears off.

One thing to watch will be how Trump's truce with Xi plays out in the media. For the US President, the perception is as important as the reality of the deal. Markets are naturally positive and that's important to Trump but wants to claim victory on all fronts and that will mean China must meet some of the US demands.

AUD/USD is caught between the downward forces of risk-off from indices and the upward impact of the broad rally in metals as well as the USD selloff. The overnight decision by the RBA to hold rates unchanged and signal the same ahead as well as experessing concern over some banks' reluctance to lend did not go unnoirced by Aussie bears.


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