As I scoured the news for relevant headlines, the first to catch my attention comes from China. Three of them actually.
The first notes that Wednesday’s rumours about possible disagreements in trade talks are not true. The second suggests China has invited US trade negotiators for more talks. All sounds good so far. The third is that China resolutely opposes US passing of HK human rights bill, which will severely damage bilateral relations. Not so good. So how does FX and equity markets react to the mix of headlines?
Equity markets in Asia and Europe are all in the red however US futures point to a mixed open. In general, the USD is lower with EURUSD at 1.1092, GBPUSD 1.2965 and AUDUSD at 0.6912. USDJPY is once again the exception, starting the US day at 108.60 having dealt as low as 108.28 overnight. XAU begins the US day at $1,467.
The first headline of the north American day suggests the US will delay further Chinese tariffs. Once again, we get a quick knee-jerk reaction with USDJPY jumping 15 points and equity futures pushing into positive territory.
Next up some US and Canadian data. The Phily Fed Manufacturing Index comes in stronger than expected at +10.6, while Canadian ADP Non-Farm employment data comes in worse at -22.6k. The only real reaction comes from USDCAD which jumps from 1.3305 to 1.3325.
However that is a short-lived move as we get some comments from Bank of Canada’s Poloz who says he thinks monetary conditions are about right.
Maybe a little less dovish than the market was looking for and the Canadian Dollar immediately jumps sending USDCAD down to 1.3270.
US equities open a little lower after the short-lived bounce in futures. EURUSD and GBPUSD give up their earlier gains with EURUSD dropping to 1.1055 and GBPUSD sliding to 1.2915. Then we get another headline on the US Congress passing of the HK human rights bill. While China fully expects Trump to sign it, they do not expect a high-profile ceremony nor have him waiving it front of reporters.
Enough for stocks to take another leg lower, the DJ down 100 points by mid-morning NY. Once Europe went home, US equities did their best to rally back to flat on the day but ultimately all three indices closed lower by less than 0.25%. This represented the 3rd consecutive day of losses for US equities.
For FX, the day could be summed as USD losses in Europe and being unwound in the US. EURUSD ends at 1.1058, GBPUSD 1.2907 and USDJPY 108.60. XAU drops to $1,464 as US bonds are sold pushing US rates higher. All in all a messy, inconclusive day.
I think the run in US equity markets has been very much driving other asset classes over the past couple of weeks. Having made record-highs, we have now had three consecutive down days.
Now when looking at an instrument that has made an all-time high it can always be a little challenging to find some very short-term support should we get a pullback.
From this hourly chart, we can see the Dow Jones Industrial Average has been rising steadily since mid-October. As you can see, this pullback has brought us right to that trend line, but for now, we hold. Should we break we could well see a deeper correction that will likely be dependant on US/China trade developments.
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