A Friendly Fix Puts A Bandage On Trade War Wounds
(Bloomberg) — As you’ve no doubt heard, the U.S. labeled China a currency manipulator overnight, thus fanning the flames of the trade war. Yet equity futures are trading comfortably higher this morning–what gives? The answer is twofold. While sounding impressive, the currency manipulator tag doesn’t actually mean very much. The legal basis for the label states that the U.S. needs to engage in bilateral discussions under the auspices of the IMF, but as you know there are already sporadic negotiations being held with China. Ultimately, it’s a bit like the scene in “Team America” where Hans Blix threatens to write an angry letter. Zzzzzz. More prosaically, China declined to up the ante at last night’s fix. The CNY was fixed more or less exactly in line with market expectations (6.9683), and while headlines trumpeted this as pushing back against currency weakness, it ultimately just represented the PBOC’s countercyclical factor at work. Without the factor, the fix would have been something like 7.02, which may have provided a rather different narrative. The PBOC also issued a few bills to drain liquidity from the CNH market, which was taken as a signal not to push things further. That’s provided some comfort … and when you add everything up, you get the futures rally. Of course, coming on the heels of a post-close futures dump yesterday, the current price only implies a modest equity rally on the open. Perhaps that will build on itself once things get going. Yet one “friendly” fix is hardly going to solve the underlying issue of the trade war … and that’s an albatross that’s likely to remain around the market’s neck for some time to come. To contact the reporter on this story: Cameron Crise in New York at
Spoos almost 100 handle range overnight, Nasdaq almost 200 and Dow 800, Dax 300 a bit of volatility overnight. Spoos +27, Nasdaq +84 and Dow +250 Australian Stocks closed lower 2.44%,NKY not so dire -.65% Bunds relatively calm 62 tick range trading plus +34 ticks, treasuries all trading a bit heavy due to move higher in Stocks, with a big range overnight.Let see how long this lasts. The trade war is hot and with two irrational actors, leading the fight, volatility should be here for a while. Just be aware that off shore Yuan is still trading above the 7 handle, 7.0456 down .75% from yesterday’s highs. Based on overnight action if the PBOC fixes yuan above 7 handle trade tensions heating up, below 7 trade tension easing. We will monitor the fix for a few days until things simmer down.
China not buying any US grains; this is having a very limited impact on Ags.For now grains looking at US Growing conditions as driver of prices. Dollar steady to higher, Euro down 20 pips Gold unchanged and cooper + a handle.
Economic calendar just shows jolts data at 9:00
11:00 fed Bullard speaks about the economy all eyes and ears will waiting for his comments