Sunny Signals Defy Dissonance

US indices hit new highs on the sunny premise that lower interest rates are a question of when rathen than if, and more importantly bright prospects from Trump-Xi summit shall iterrupt the global easing cycle. Can the dissonance last? The Australian dollar was the top performer while the pound lagged. US markets are closed on Thursday for Indepedence day Holiday. US and Canada jpbs figures follow on Friday. A new set of charts & analysis was updated for the GBPUSD Premium trade.

US stocks hit record highs on Wednesday while Treasury yields hit cycle lows. The message is that the economic outlooks is improving but also that interest rates will fall. Or that the trade war will ebb but that inflation risks remain remote.

Economic data Wednesday showed a US economy that might be slowing, but not dramatically. The ISM non-manufacturing index was at 55.1 compared to 56.0 expected. The Markit services PMI – which ostensibly measures the same thing – rose to 51.5 compared to 50.7 expected.

On the jobs front, the ADP employment report was a disappointment at 102K compared to 140K expected but initial jobless claims remain near generational lows at 221K compared to 223K expected.

Barring a slump in the data or trouble in the economic data, it's tough to square the data with signals pointing to lower rates at the Fed, BOE and ECB. The risk in the weeks ahead is that the Fed tries to reel in cut expectation. That would hurt risk trades. Alternatively, the economic data could turn lower and that would also weigh on stocks and yen crosses. Ashraf tweeted (see above) on the possibility of some threatening action from Trump in the event that the Fed does not cut rates later this month. And if markets are rallying ahead of easing, how would the market react if rate cuts do not come on time (this month) or not at all?

For the moment, the US is taking a long weekend but on Friday non-farm payrolls could throw everything into disarray. The consensus is for a +160K reading with unemployment steady at 3.6%.