Totally Thwarted

The data that China reported
Showed growth there somewhat less supported
Meanwhile in Hong Kong
The protesting throng
Has bullish views totally thwarted

Once again, risk is under pressure this morning as the litany of potential economic and financial problems continues to grow rather than recede. The latest concerns began last night when China reported slowing Investment (5.6%, below 6.1% expected) and IP (5.0%, weakest since 2002) data (although Retail Sales held up) which led to further concerns over the growth trajectory in the Middle Kingdom. PBOC Governor Yi Gang assures us that China has significant firepower left to address further weakness, but traders are a little less comforted. Adding to concerns are the ongoing protests in Hong Kong over potential new legislation which would allow extradition, to mainland China, of people accused of fomenting trouble in Hong Kong. That is a far cry from the separation that has been key in allowing Hong Kong’s financial markets and economy to flourish despite its close ties to Beijing.

The upshot is that stocks in Hong Kong (-0.65%) and Beijing (-1.0%) fell again, while interest rates in Hong Kong pushed even higher. This has resulted in a liquidity shortage in Hong Kong which is supporting the HKD (+0.2% this week and finally pushing away from the HKMA’s floor). The renminbi, meanwhile, has gone the other way, softening slightly since the protests began. Other signs of pressure were evident by the weakness in AUD and NZD, both of which rely heavily on the Chinese market as their primary export destinations.

Risk is also evident in the energy markets where there has been an escalation in the rhetoric between the US and Iran after the tanker attacks yesterday. This morning the US is claiming it has video proof that Iran was behind the attacks, although it has not been widely accepted as such. Oil prices, which rose sharply yesterday, have maintained those gains, although on the other side of the oil equation is the slowing economy sapping demand. In fact, the IEA is out with a report this morning that next year, production increases in the US, Canada and Brazil will significantly outweigh anemic increases in demand, further pressuring OPEC and likely oil prices overall. However, for the moment, the market concerns are focused on the increased tension in the Gulf with the possibility of a conflict there seeming to rise daily. Remember, risk assets tend to suffer greatly in situations like this.

Aside from the weaker Aussie (-0.25%) and Kiwi (-0.55%), we have also seen strength in the yen (+0.2%), a huge rally in Treasuries (10-year yield down 4.5bps), gold pushing higher (+1% and back to its highest level in three years) and the dollar, overall performing well. The latter is evidenced by the decline in the euro (-0.2%), the pound (-0.3%) and basically the rest of the G10 with similar declines.

This is the market backdrop as we await the last major piece of data before the FOMC meeting next week, this morning’s Retail Sales numbers. Current expectations are for a 0.6% increase, with the ex-autos number printing at 0.3%. But recall, last month economists were forecasting a significant gain and instead the headline number was negative. A similar result this morning would certainly add more pressure on Chairman Powell and friends next week. And that is really the big underlying story across all markets, just how soon are we likely to see the Fed or the ECB or the BOJ turn clearly dovish and ease policy.

It has become abundantly clear that inflation is the only data point that the big central banks are focusing on these days. And given their fixation on achieving a, far too precise, level of 2.0%, they are all failing by their own metrics. Wednesday’s US CPI data was softer than expected leading to reduced expectations for the PCE data coming at the end of the month. In the Eurozone, 5y/5y inflation swaps, one of the ECB’s key metrics for inflation sentiment, has fallen below 1.20% and is now at its lowest level since the contract began in 2003. And in Japan, CPI remains pegged just below 1.0%, nowhere near the target level. It is this set of circumstances, more than any questions on growth or employment, that will continue to drive monetary policy. With this in mind, one can only conclude that money is going to get easier going forward. I still don’t think the Fed moves next week, but I could easily see a 50bp cut in July. Regardless, markets are going to continue to pressure all central banks until policy rates are lowered, mark my words.

Regarding the impact of these actions on the dollar, it becomes a question of timing more than anything else. As I have consistently maintained, if the Fed starts to ease aggressively, you can be sure that the ECB and BOJ, as well as a host of other central banks, will be doing so as well. And in an environment of global weakness, I expect the dollar will remain the favored place to maintain assets.

As for today, a weak Retail Sales print is likely to see an initial sell-off in the dollar but look for it to reverse as traders focus on the impacts likely to be felt elsewhere.

Good luck and good weekend
Adf

 

Stopped at the Border

On Friday the President tweeted
Unless immigration, unneeded,
Is stopped at the border
I will give the order
To raise tariffs til it’s defeated

Friday’s big market news was President Trump’s threat of new tariffs, this time on Mexico, if they don’t address the illegal immigration issue domestically. This is a novel approach to a non-economic problem, but given the President’s embrace of the tariff process, perhaps it is not that surprising. The impact across markets, however, was substantial, with equities suffering while haven assets, notably Treasuries and Bunds, both rallied sharply. In fact, those moves have continued through the overnight session and we now see the 10-year US Treasury yielding just 2.10%, its lowest since September 2017, while 10-year Bunds are yielding a record low -0.21%! In other words, fear is rife that the future is going to be less amenable to investors than the recent past.

Meanwhile, equity markets have also suffered with Friday’s global sell-off continuing this morning in Europe after a mostly negative day in Asia. As to the dollar, it has been a bit more mixed, falling sharply against the yen (JPY +1.1% Friday, flat today), rising sharply against emerging market currencies (MXN -2.5% Friday, -0.3% today), but actually sliding slightly vs. its other G10 counterparts.

It is instructive to consider why the dollar is not maintaining its full status as a haven. Ultimately, the reason is that expectations for aggressive rate cuts by the Fed are becoming the default market expectation. This compares to a much less aggressive adjustment by other central banks, and so the relative forecasts point to a narrowing interest rate differential. Consider that the futures market has now priced in three rate cuts by Q1 2020 in Fed funds. Six months ago, they were pricing in three rate hikes! That is a huge sentiment change, and yet the dollar is actually stronger today than it was at the beginning of the year by about 2%. The point is that while recent economic estimates in the US continue to be downgraded, estimates for the rest of the world are being downgraded equally. In fact, there is substantially greater concern that China’s GDP growth could slow far more than that of the US adding to knock-on effects elsewhere in the world.

One of the things I have consistently maintained is that a slowdown in the US will not happen in isolation, and if the US is slowing, so will be the rest of the world. This means there is virtually no probability that the Fed will cut rates without essentially every other country easing policy as well, and that all important (at least for FX traders) interest rate differential is not likely to shrink nearly as much as reflected by simply looking at the Fed’s activities. A perfect example is Australia, where tomorrow’s RBA meeting is expected to see a 25bp rate cut, with the market pricing between two and three more during the next several quarters. Aussie has been suffering lately and is likely to continue to do so going forward, especially as pressure remains on China’s economy.

The Fed’s done a year-long review
Of policies they might turn to
They’re hoping to find
A new frame of mind
In order to reach a breakthrough

The other story about which you will hear a great deal this week is the gathering at the Chicago Fed of the FOMC and academics as they try to find a better way to effect policy. The positive aspect of this process is that they recognize they are not really doing a very good job. The negative aspect is that they continue to believe inflation remains too low and are extremely frustrated by their impotence to change the situation. We have already heard a number of the ideas; ranging from choosing a higher inflation target to allowing inflation to run hot (if it ever gets there based on their measurements). Alas, there seems little chance that the fundamental issue, the fact that their models are no longer reasonable representations of the real world, will be addressed. To a (wo)man, they all continue to strongly believe in a Keynesian world where more stimulus equals more economic activity. I would contend that, not dissimilar to the differences between Newtonian physics and particle physics, interest rates at the zero bound (and below) no longer have the same impact as they do at higher levels. And it is this failure by all central bankers to recognize the non-linearity of results which will prevent a viable solution from being found until a crisis materializes. And even then I’m not optimistic.

Turning to this weeks’ data dump, there is a ton of stuff coming, culminating in Friday’s NFP report:

Today ISM Manufacturing 53.0
  ISM Prices Paid 52.0
  Construction Spending 0.4%
Tuesday Factory Orders -0.9%
Wednesday ADP Employment 185K
  ISM Non-Manufacturing 55.5
  Fed’s Beige Book  
Thursday Initial Claims 215K
  Trade Balance -$50.7B
  Nonfarm Productivity 3.5%
  Unit Labor Costs -0.8%
Friday Nonfarm Payrolls 183K
  Private Payrolls 175K
  Manufacturing Payrolls 4k
  Unemployment Rate 3.6%
  Average Hourly Earnings 0.3% (3.2% Y/Y)
  Average Weekly Hours 34.5

There are also eleven Fed speakers including Chairman Powell on Tuesday morning as well as the aforementioned Fed conclave regarding new policy tools. In other words, there is plenty available to move markets this week. And that doesn’t even take into consideration the ongoing trade situation, where fears are extremely high, but both China and Mexico have said they want to sit down and discuss things again.

At this point, given how much new information will be added to the mix, it is impossible to say how markets will perform. However, with that in mind, we will need to see some extraordinarily weak US data to change the idea that the US is still the ‘cleanest dirty shirt in the laundry’, to use a terrible metaphor. As well, do not be surprised to see Mexico, at least, agree to implement new policies to address the immigration issue and reduce pressure on the peso. In the end, I continue to look for the dollar to maintain its overall strength, but a modest drift lower against G10 counterparts is well within reason.

Good luck
Adf

Caused by the Other

With tariffs now firmly in place
The market’s been keen to embrace
The idea that Xi
And Trump will agree
To terms when they meet face-to-face

But rhetoric lately has shown
That both Trump and Xi will condone
A slowdown in trade
That both men portrayed
As caused by the other, alone

Risk is, once again, in tatters as the fallout from the US increase in tariffs starts to feed through the market. As of midnight last Thursday, US tariffs on $200 billion of goods rose to 25%. This morning, a list of the other $325 billion of goods that may be subject to tariffs will be published with a target date of 30-days before imposition. Meanwhile, China continues to try to figure out how best to respond. Their problem, in this scenario, is they don’t import that much stuff from the US, and so trying to determine what is an ‘equal’ offset is complicated. However, I am confident that within the next day or two, they will publish their response. Markets around the world have felt the fallout, with equity prices everywhere under pressure, EMG currencies, especially, feeling the heat, and Treasury bonds and German bunds remaining in vogue.

As of now, it appears the situation is unlikely to improve in the short-term. The US remains miffed that the Chinese seemingly reneged on previously agreed terms. Meanwhile, the Chinese are adamant that they will not kowtow to the US and be forced to legislate the agreed changes, instead insisting that administrative guidance is all that is needed to insure compliance with any terms. They deem this desire for a legislated outcome as impinging on their sovereignty. Once again, the issue falls back to the idea that while the US consistently accused the Chinese of IP theft and forced technology transfer, the Chinese don’t see it that way, and as such, don’t believe they need to change laws that don’t exist. Whatever the merits of either sides views, the end result is that it seems far less clear that a trade deal between the two is going to be signed anytime soon.

The markets question is just how much of this year’s global equity market rally has been driven by the assumption that trade issues would disappear and how much was based on a response to easier central bank policies. The risk for markets is not only that growth is negatively impacted, but that inflation starts to rise due to the tariffs. This would put the central banks in a tough spot, trying to determine which problem to address first. Famously, in 1979, when Paul Volcker was appointed Fed Chairman, he immediately took on inflation, raising short term interest rates significantly to slay that demon, but taking the US (and global) economy into recession as a result. It strikes me that today’s crop of central bank heads does not have the wherewithal to attack that problem in the same manner as Volcker. Rather, the much easier, and politically expedient, response will be to try to revive the economy while allowing inflation to run hot. This is especially the case since we continue to see serious discussions as to whether inflation is ‘dead’. FWIW, inflation is not dead!

At any rate, for now, the trade story is going to be the key story in every market, and the upshot is that the odds of any central bank turning more hawkish have diminished even further.

Looking at overnight activity, there was virtually no data to absorb with just Norwegian GDP growth printing slightly softer than expected, although not enough to change views that the Norgesbank is going to be raising rates next month. Broadly speaking, the dollar is quite firm, with the biggest loser being the Chinese yuan, down 0.9%, and that movement dragging down AUD (-0.45%) as a G10 proxy. But while other G10 currencies have seen more limited movement, the EMG bloc is really under pressure. For instance, MXN has fallen 0.6%, INR 0.75%, RUB, 0.5% and KRW 1.2%. All of this is trade related and is likely just the beginning of the fallout. Once China publishes its list of retaliatory efforts, I would expect further weakness in this space.

Equity markets are suffering everywhere, with Shanghai (-1.2%) and the Nikkei (-0.7%) starting the process, the DAX (-0.8%) and CAC (-0.6%) following in their footsteps and US futures pointing lower as well (both Dow and S&P futures -1.3%). Treasury yields have fallen to 2.43% and are now flat with 3-month Treasury bill rates, reigniting concerns over future US growth, and commodity prices are feeling the strain as well on overall growth concerns.

Turning to the data this week, there is a modicum of news, with Retail Sales likely to be seen as the most important:

Tuesday NFIB Business Optimism 102.3
Wednesday Retail Sales 0.2%
  -ex autos 0.7%
  Capacity Utilization 78.7%
  IP 0.1%
  Empire State Mfg 8.5
Thursday Initial Claims 220K
  Housing Starts 1.205M
  Building Permits 1.29M
  Philly Fed 9.0
Friday Michigan Sentiment 97.5

We also see the housing story and hear from another five Fed speakers across seven speeches this week. However, as we learned last week, pretty much the entire Fed is comfortable with their patient stance in the belief that growth is solid and inflation will eventually head to their target of 2.0%.

Add it all up and there is no reason to believe that the trends from last week will change, namely further pressure on equity markets and commodities, with the dollar and Treasuries the beneficiaries.

Good luck
Adf

Growing Concern

The trade talks have taken a turn
Amidst markets growing concern
The story today
Is China won’t play
By rules which trade partners all yearn

The trade talks narrative is shifting, and markets are not taking kindly to the change. Prior assumptions had been that the talks were progressing well and that this week’s meetings in Washington were going to produce the final agreement. However, this morning the tone has changed dramatically. President Trump tweeted that the Chinese “broke the deal”, implying that items previously agreed by the two sides are no longer acceptable to China. To my reading, the key issue is the Chinese refusal to codify into law the changes being agreed regarding IP and forced technology transfer. It appears that the Chinese believe this too onerous and difficult to accomplish and instead will be giving guidance to local governments. (Perhaps somebody can explain to me how it is too onerous for a dictatorship to change its own laws.) Essentially, they want the US to trust that they will perform as expected. Simultaneously, it appears the Chinese have interpreted President Trump’s hectoring of the Fed to cut rates as an admission that the US economy is not strong, and that Trump needs to cut the deal. This has encouraged the Chinese to play hardball as they believe they have the upper hand now.

The upshot is that the odds of a successful conclusion of the talks have fallen sharply. At this point, my read is they are no more than 50:50, which is far lower than the virtual certainty the market had been pricing as recently as last Friday, and quite frankly far lower than the market is currently pricing. In fact, it is easy to make the case that at least half of the equity rebound since Christmas is due to the growing belief a trade deal would be agreed, so if that is no longer the case, a further repricing (read decline) is in the cards. As such, it should be no surprise that equities in Asia continue to retreat (Nikkei -0.95%, Shanghai -1.5%, Hang Seng 2.4%) and we are seeing weakness throughout Europe as well (DAX -0.9%, CAC -1.3%, FTSE -0.4%) given concerns that a failure in these talks will have a much wider impact spread across the investment community. Not surprisingly, US futures are pointing lower with both Dow and S&P futures -0.75% as I type.

Continuing with the risk-off theme, Treasury yields continue to decline, falling two basis points even after a very weak 10-year auction yesterday, while German bund yields have fallen another bp to -0.06%, their lowest level in two months. The flight to safety is beginning to gain some momentum here.

Finally, looking at the dollar, it should be no surprise it is having another good day. While it is little changed vs. the euro, it continues to trade near the lower end of its recent trading range. However, the pound has fallen a further 0.2% hindered not only by the modest dollar strength but by the realization that there will be no grand deal between the Tories and Labour regarding Brexit. Adding to the risk-off mood is the yen’s further appreciation, another 0.2%, taking it below 110 for the first time in three months.

In the EMG bloc, one cannot be surprised that CNY is weaker, pushing back toward 6.85 and touching its weakest level since January. On top of that, the offshore CNH is even weaker as speculation grows that a collapse in the trade talks will result in the Chinese allowing the renminbi to fall much more sharply. But it’s not just China under pressure here; we are seeing weakness in every area. For example, the Mexican peso has fallen 0.5%, Indian Rupee 0.3% and Korean won 0.85%. In other words, the carry trade is under pressure as the first investors search for a safe place to hide. Unless the talks get back on track, I expect that we will see further weakness in the EMG bloc especially.

On the data front, overnight we saw Chinese financing data which demonstrated that despite the PBOC’s efforts to add liquidity to the market, financing is not growing as rapidly as they would like. For example, New Yuan Loans increased a much less than expected CNY 1trillion (exp CNY 1.2 trillion), while Outstanding Loan Growth ebbed as well. The point is that like every other central bank, the PBOC is finding that their ability to control the economy is slipping.

This morning brings Initial Claims (exp 220K) along with the Trade Balance (-$50.2B) and PPI (2.3%, core 2.5%) all at 8:30. Also at that time, we hear from Chairman Powell, followed by speeches from Atlanta’s Rafael Bostic and Chicago’s Charles Evans later in the day. The thing is, it beggars belief that any of them are going to change their tune regarding the Fed’s patience as they watch the economy develop. At this point, the key question is, if the trade talks completely fall apart and new tariffs are imposed by both sides leading to a severe decline in the equity market, will the Fed start to contemplate cutting rates? At this point I am sure they would vehemently deny that is their thought process. But if recent history is any guide, the financialization of the US economy has forced the Fed to respond to any significant movement in the S&P. So I would answer, yes they will! But that is a story for another day. Unless there is positive news from the trade front today, look for the overnight trends to continue; weaker equities, stronger Treasuries and a stronger dollar.

Good luck
Adf

 

Incessant Whining

Can someone help me understand
Why euros remain in demand?
Theira growth rate’s declining
While incessant whining
Is constant from Rome to Rhineland

Another day, another failure in Eurozone data. This morning’s culprits were German and Spanish IP, both of which fell sharply. The German outcome was a fourth consecutive monthly decline, with a surprise fall of 0.4%, as compared to expectations for a 0.7% rise. Not only that, November’s release was revised lower to -1.3%. It seems pretty clear that positive growth momentum in Germany has faded. At the same time, Spain, which had been the best growth story in the entire Eurozone, also released surprisingly weak IP data, -6.2%, its largest decline in seven years, and significantly lower than the -2.3% expected. This marks two consecutive months of decline, and three of the past four. It appears that the Spanish growth story is also ebbing.

It should be no surprise that the euro has fallen further, down another 0.3% this morning and back to its lowest levels in two weeks. As I have consistently maintained, FX movements rely on two stories, with the relative strength of one currency’s economy and monetary policy stance compared to the other’s. And while the Fed’s U-turn at the end of January, marked an important point in the market’s collective eyes, thus helping to undermine the dollar strength story, the fact that the European growth story seems to be diminishing so rapidly is now having that same impact on the euro. The EU has reduced, yet again, its growth forecasts for the EU and virtually every one of its member nations. Italy’s forecast was cut to just 0.2% GDP growth in 2019. Germany’s has been cut to 1.1% from a previous forecast of 1.9% in 2019. As I have written repeatedly, the idea that the ECB can tighten policy any further given the economic outlook is fantasy. Look for a reversal by June and either a reinstatement of QE, or forward guidance eliminating any chance of a rate hike before 2021! Rolling over TLTRO’s is a given.

But the euro is not the only currency under pressure this morning, in fact, the dollar, once again, is on the move. The pound, for example, is also down by 0.3% as the market awaits the BOE’s rate decision. There is no expectation for a rate move, but there is a great deal of interest in Governor Carney’s comments regarding the future. Given the ongoing uncertainty with Brexit (which shows no signs of becoming clearer anytime soon), it remains difficult to believe that the BOE can raise rates. This is especially true because the economic indicators of late have all shown signs of a substantial slowdown of UK growth. The PMI data was awful, and growth forecasts by both private and government bodies continue to be reduced. However, despite the fact that the measured inflation rate has been falling back to the 2.0% target more quickly than expected, there is a great deal of discussion amongst BOE members that wages are growing quite quickly and thus are set to push up overall inflation. This continues to be the default mindset of central bankers around the world, as it is built into their models, despite the fact that there is scant evidence in the past ten years that rising wages has fed into measured price inflation. And while it is entirely possible that inflation is coming soon to a store near you, the recent evidence has pointed in the opposite direction. Inflation data around the world continues to decline. Despite Carney’s claims that Brexit may force the BOE to raise rates after a sudden spike higher in inflation, I think that is an extremely low probability event.

In the meantime, the Brexit saga continues with no obvious answers, increasing frustration on both sides, and just fifty days until the UK is slated to exit the EU. Parliament is due to vote on PM May’s Plan B next week, although it now appears that might be delayed until the end of the month. But in the end, Plan B is just Plan A, which was already soundly rejected. At this point, it is delay or crash, and as the pound’s recent decline implies, there are more and more folks thinking it is crash.

Other currency news saw the RBI cut rates 25bps last night in what was a mild surprise. If you recall I mentioned the possibility yesterday, although the majority of analysts were looking for no movement. Interestingly, the rupee actually rallied on the news (+0.2%), apparently on the belief that the new RBI Governor, Shaktikanta Das, has a more dovish outlook which is going to support both growth and the current market friendly government of PM Modi. However, beyond that, the dollar is broadly higher this morning. This is of a piece with the fact that equity markets are generally under pressure after a lackluster decline yesterday in the US; commodity prices have continued their recent slide, and government bonds are firming up with yields in the havens, like Treasuries and Bunds, declining. In addition, the one other currency performing well this morning is the yen. In other words, it appears we are seeing a mild risk-off session

Turning to the data, yesterday’s Trade deficit was significantly smaller than expected at ‘just’ -$49.7B with lower imports the driving force there. Arguably, we would rather see that number shrink on higher exports, but I guess tariffs are having their intended effect. This morning, the only scheduled data is Initial Claims (exp 221K), which jumped sharply last week, but have been averaging about 225K for the past several months. However, given what might be a turn in the Unemployment Rate trend, it is entirely possible that this number starts trending slightly higher. We will need to keep watch.

At this point, the dollar has continued to perform well for the past several sessions and there is no reason to believe that will change. The initial dollar weakness in the wake of the Fed’s more dovish commentary is now being offset by what appears to be ongoing weakness elsewhere in the world. I admit I expected to see the dollar remain under pressure for a longer period than a week, but so far, that’s been the case, one week of softening followed by a rebound with no obvious reason to see it stop. If equity markets continue to underperform, then it seems likely the dollar will remain bid.

Good luck
Adf

 

A Few Tweaks

Ms May explained that her Plan B
Was really a wonder, you see
She’d get a few tweaks
And then in ten weeks
The UK would finally be free!

The way I see it, Plan B is essentially a game of chicken. To date, the EU has said that they are firm and will not cede any more ground than that already outlined in the deal on the table. However, with ten weeks to go, the reality that the UK could exit with no deal is starting to hit home. Regardless of what they have said to date, a hard Brexit is going to have real negative impacts on the EU, especially Germany, the Netherlands and France, as they are the biggest trading partners of the UK. So, PM May went back to Parliament and explained that she would go back to the EU and explain that there needed to be some changes or else it was no deal. The first cracks appeared on the EU side with Poland discussing a 5-year transition period as a possibility, although so far, no other EU nation has piped up.

But consider the situation for the ECB. Signor Draghi is desperate to move further down the road of reducing the extraordinary monetary ease that the ECB has implemented. Stopping QE was to be the beginning of the process with the next steps to be slow and steady rate increases. Now, it is already looking like a questionable call, and a hard Brexit will definitely result in even slower Eurozone growth, thus ratcheting up the pressure on Draghi to do something. Remember, this is the man who did ‘whatever it took’ to save the euro during the sovereign debt crisis in 2012. But interest rates are already negative, and they just ended QE last month. Will they really start it up again in a few months’ time? There is significant pressure building on the EU to blink, although whether or not they do is still unclear.

Yesterday I discussed the idea that Parliament would try to take matters into its own hands given its dissatisfaction with PM May’s deal, but that would be an extraordinary outcome, and is in no way certain to be achieved. This morning, the pound has edged higher (just 0.2%) after surprisingly good employment data with the Unemployment Rate falling to 4.0%. Sterling continues to trade well above the lows seen in December though well below most economist estimates of ‘fair value.’ The thing is, given the possibility that there is no Brexit, which would arguably result in a very sharp Sterling rally, as well as the possibility there is a hard Brexit, which would result in a very sharp decline, maybe the pound is in the right place after all. And for hedgers, 50/50 is the best I can offer. If pressed, I would say the odds of no Brexit have increased, but there is still no way to know at this point in time.

Other than this story, however, there is precious little new news of interest to the FX world. The trade situation continues to percolate, as does the US government shutdown, but neither one has seen any change of note overnight. In both cases, there doesn’t appear to be a deal in the near future.

Broadly speaking, risk is off today, with the dollar modestly higher against most counterparts, equity markets softening somewhat along with commodities and Treasury and Bund yields declining slightly. There are still many problems extant in the world, it’s just that none of them are acute right now. However, the odds of another significant disruption appear to be increasing, hence the risk reduction we are witnessing today.

This morning’s data is Existing Home Sales (exp 5.25M), which is unlikely to impact the dollar very much unless it misses by a lot. Otherwise, the market is likely to continue this modest risk aversion unless we hear something about either Trade or the shutdown. In other words, look for a quiet FX session today.

Good luck
Adf