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Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
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NY Open: Sentiment boost sees strong open for equities, USD
Michael O’Neill
FX Trader, Loonieviews.net
Summary: Wall Street is wary, but a shift toward stronger sentiment has allowed some further recovery post- the opening bell. The shifting tides are due to a shaky Sino-US circumstance post-the Huawei arrest, as well as uncertainty ahead of upcoming central bank meetings.
Today's equity markets are about as skittish as a baby deer in hunting season. Prices rise and fall, seemingly lifted by invisible gusts – typical moves in a pre-central bank meeting data void. The European Central Bank meets Thursday and the Federal Open Market Committee doesn’t meet until next week; Wall Street is taking its cue, it seems, from US/China trade talk sentiment.
China’s unhappiness with the arrest of the Huawei CFO and threats of “consequences” led to yesterday morning’s selling. Buyers reemerged after reports that Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer held telephone negotiations with their Chinese counterparts.
Stocks got an added boost today after Bloomberg reported that China is getting set to cut tariffs on US cars from 40% to 15%. That move is a concession by China which modestly improves the prospect for successful trade talks. More immediately, it set the stage for this mornings “pop” when Wall Street opened. Tesla (TSLA: Nasdaq) rose 0.23% on the news. However, the day is young, and prices have already retreated from their best levels as of 14:00 GMT.
Wall Street, like Bambi, is not out of the woods.
The US dollar opened with small losses compared to yesterday’s closing levels, but those losses evaporated quickly, led by fresh selling of EURUSD. The slightly better than expected November US Producer Price Index (actual 0.1% m/m versus a forecasted 0.0, ex food-energy 0.3% vs. 0.1%) contributed to the downward pressure on the single currency. The break below support at 1.1350 targets the November uptrend support line at 1.1305.
USDCAD is consolidating yesterday’s gains. The short-term technical picture is bullish following the break above 1.3380 with traders looking for a break of resistance in the 1.3440-60 area to extend gains to 1.3550. The employment data added another wrinkle to the confusion surrounding the Bank of Canada’s flip-flop from hawkish in October to dovish in December. Weak oil prices and the prospect of a US rate hike next week is also underpinning the currency pair.
China’s unhappiness with the arrest of the Huawei CFO and threats of “consequences” led to yesterday morning’s selling. Buyers reemerged after reports that Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer held telephone negotiations with their Chinese counterparts.
Stocks got an added boost today after Bloomberg reported that China is getting set to cut tariffs on US cars from 40% to 15%. That move is a concession by China which modestly improves the prospect for successful trade talks. More immediately, it set the stage for this mornings “pop” when Wall Street opened. Tesla (TSLA: Nasdaq) rose 0.23% on the news. However, the day is young, and prices have already retreated from their best levels as of 14:00 GMT.
Wall Street, like Bambi, is not out of the woods.
The US dollar opened with small losses compared to yesterday’s closing levels, but those losses evaporated quickly, led by fresh selling of EURUSD. The slightly better than expected November US Producer Price Index (actual 0.1% m/m versus a forecasted 0.0, ex food-energy 0.3% vs. 0.1%) contributed to the downward pressure on the single currency. The break below support at 1.1350 targets the November uptrend support line at 1.1305.
USDCAD is consolidating yesterday’s gains. The short-term technical picture is bullish following the break above 1.3380 with traders looking for a break of resistance in the 1.3440-60 area to extend gains to 1.3550. The employment data added another wrinkle to the confusion surrounding the Bank of Canada’s flip-flop from hawkish in October to dovish in December. Weak oil prices and the prospect of a US rate hike next week is also underpinning the currency pair.
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