It's no surprise to see risk trade better with the S&P holding on to overnight gains on the back of the recent trade headlines. However, fixed income is still undecided as UST 10-year yield remains glued to the pivotal 1.74-1.75 % level. However, backing out the rolls activity bond markets have been relatively quiet this week. Still, the common them in Asia in UST's is selling vols as Fed monetary policy uncertainly continues to dissipate as the market has grown more comfortable with the idea of a Fed on hold for the foreseeable future.
Asian stocks are broadly higher on trade optimism with Nikkei +0.48%, Hang Seng +0.05%, and ASX +0.8%. Treasuries were soft early in the session and touched an intraday low of 129-18 before retracing above 129-20 while E-minis went up 2 points from 3143.75 at the open.
Cross-asset volatilities are very low, and further vol suppression could be on the cards ahead with the Thanksgiving holiday in the U.S. The calm in the U.S. treasury markets is having a soothing influence across a breadth of asset classes.
But this could be the calm before the storm as all the data that matters before Christmas will be released next week. The economic data ranges from the employment report to a look at inflation to the ISM PMI, which could be a monster data week and might set the tone into the holiday season.
Last week, the Markit PMI was released, indicating a pickup n U.S. manufacturing. The magnitude of which was better than expected. If we get a couple of decent follow-up prints next week, it will be difficult for the doom and gloomers to articulate a doomsday stance on the U.S. economy. Of course, U.S. - China relations are always going to be a thorn in the market side, but even on that front risks as slowly evaporating.
Currency markets
Australian dollar
The activity was, for the most part, dull after RBA Governor Lowe's comments overnight hosing down the prospect of Q.E. until the cash rate is at 0.25%. Australia construction work in Q3 beat expectations at -0.4% vs. -1.0%, but price action remained subdued.
In the Sydney afternoon, the AUD buckled around 25 pips lower after one of the big Australian banks was reported as expecting the RBA to begin Q.E. in H2 2020 on top of 25bp cuts in February and June.
The Pound
Not unexpected given the uncertainty over any U.K. election, as history reminds us. Given market position (long GBP), there will be a fair amount of attention on the tightening of the gap between the Conservatives and Labour in the last couple of days.
The Euro
The chunky LVMH/Tiffany M&A deal worth 16.2bio USD is likely weighing in the EUR/USD, as is the U.K. election poll wobble week. Still, for now, with renewed strength in USTs, the pair seems to be resilient above 1.10 handle again, but with the lack of better European data lately, the single currency might struggle to find legs. But with the holiday-shortened week, traders are more prone to put through client orders rather than extend risk.
The Yuan
China's October industrial profits came in at -9.9% vs. -5.3% in September and marked the most significant drop since 2011. USD/CNH bounced off the overnight low on the weak reading. But other than that, most risk assets have turned a blind eye as traders remain singularly focused on the trade deal narrative.
The Ringgit
The Ringgit can't seem to catch a break. Today's drop in China's industrial profit that sent USD/CNH bounding off overnight lows negatively impact ASEAN currency sentiment.
The Ringgit should trade on a more favorable note when a trade deal is finally signed. But local traders could quickly pivot back to the economic realities, which in China's case, don't look overly optimistic, which might not be so great for the Ringgit either if the Yuan continues to backpedal.
Oil
Oil markets have been gradually retracing the API inventory build sell-off as bullish sentiment is getting nudged along by trade optimism. Still, caution remains as traders are awaiting some clarity on the deal signing venue and date along with the exact measure of tariff rollbacks.
Gold
Given gold’s inverse correlation to positive trade news flow, the market has been slightly skewed better offered in Asia and as UST's have traded stable
But gold bears are still a bit cautious not wanting to position to far ahead until they get a good measure of the tariff rollbacks. As depending on the extent of the roll's backs, they could have a significant impact on global growth and the Feds monetary policy outlook.
Gold investors have remained defensive today knowing full well that fast money traders will be looking to knock gold lower on any sign of significant progress in the trade deal, especially around dates, venues, and tariff rollbacks.