Markets Calm After Monday's Storm

Markets Calm After Monday's Storm

14 May 2019

Riskier assets have stabilized following Monday’s meltdown.  President Trump attempted to jawbone the markets saying that he believed the next round of talks will be very successful.  He added that he’ll meet with President Xi at the June G20 summit in Osaka Japan.  President Trump and President Xi have had success in calling a truce at these events in the past. Until that period there will be issue and headlines will continue to drive the markets.

Markets are Stabilizing

The dollar is mixed on Tuesday versus the majors. The Nikkei fell 0.6%, while the Shanghai dropped 0.7% on Tuesday.  The US 10-year yields are up 1 bp at 2.41%, while commodity prices are mixed. Crude oil is up 1%, copper up 0.5%, and gold down 0.3%.

The trade disputed continued to Tuesday as China announced retaliatory measures, after which the USTR released a list of around $300 billion of Chinese goods that could be hit in the next round of tariffs.  The big surprise was that China is reportedly discussing the sale of UST holdings.  China halting purchases of US agricultural goods.  With total reported holdings of $1.13 trillion as of February, selling US treasury securities will damage the Chinese portfolio.  The 10-year UST yields are now lower than they were when the China headlines hit. Remember, treasury yields move in the opposing direction of price. Yields would not be lower if the Chinese were selling their portfolio of US treasuries.

German ZEW is Mixed

The German assessment of the current situation improved from 5.5 to 8.2, which is more than expected.  It is the first increase since last September.  The future expectations component contracted into negative territory to -2.1 where it had been since April 2018.  The UK reported average weekly earnings  that rose less than expected. Earnings increased to 3.2% year over year, compared to expectations they would rise to 3.4%.  Ex-bonus earnings were in line with expectations rising to 3.3% year over year.  Unemployment fell to 3.8%, while employment rose 99k less than the 140K expected. 

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