Intraday Market Thoughts

Trade Talks & Low Inflation Weigh in

by Adam Button
Oct 10, 2019 16:19

Wild fluctuations in indices during the least liquid time of the day (post-US, pre Asia) gave way to a gradual rebound into the US session. Sudden declines in equity markets on reports that China's delegation could leave the US early were reversed higher later after Trump tweeted he would meet China's vice Premier. US CPI came in lower than expected. GBP spiked over full cent to 1.2315 on an optimistic joint statement from UK and Irish PMs Johnson and Vradkar. The Premium short in the DOW30 was stopped out and a video for Premium members has been released below.

Trade Talks' Low Bar of Expectations

Headlines will continue to dominate in the hours and days ahead but judging by the positive reactions to some of these headlines, expectations have been lowered to the point where any kind of a ceasefire would be a moderate win (but perhaps a fleeting one).

The trade meetings this week are dominating markets but a secular theme in global economies is low inflation. It was something the Fed highlighted in the FOMC minutes and will be a focus in the day ahead with the US CPI due. On Wednesday, the euro was the top performer while the yen lagged.

Fed's Low Inflation Trap

The Fed argument for lowering interest rates has slowly shifted from one primarily about trade risks and uncertainty to broader concern about low inflation. It's all a bit rich considering the Fed has missed its inflation target for years and was hiking rates but it's pertinent nonetheless.

That's especially true because there are signs of a turn in the economy. Wednesday's JOLTS report showed the third consecutive decline in job openings, something that hasn't happened since 2009. The level of opening remains high and the overall jobs market is very strong but there are few signs that it will strengthen further and that means any wage pressures could soon dissipate.

With just 9 days until the blackout period begins, officials will need to make a concerted effort to tame cut expectations, which are at 78%.


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