Market Drivers December 3, 2019
RBA stays on hold Aussie rallies
Cable inches higher on better polls
Nikkei 1.01% Dax 0.687%
UST 10Y 1.85%
Oil $58/bbl
Gold $1455/oz
BTCUSD $7327

Europe and Asia:
AU AUD RBA on hold

North America:
No Data

An impromptu press conference by President Trump turned into a massive risk-off event when he casually mentioned that he had no deadline for Phase 1 trade deal with China and could wait until after the election if need be.

Equities immediately dumped on the news taking USD/JPY lower as the pair dropped below the 109.00 figure on the news. President Trump’s nonchalance caught the market off guard as investors were under the impression that trade talks were almost at the completion phase.

If Trump’s statements are true rather than mere rhetoric then they suggest that there is a very real possibility that the next set of US tariffs due December 15th could go into effect which would greatly undermine sentiment and could trigger a major selloff in risk assets.

The news also comes against the backdrop of weak US economic data. Yesterday’s US ISM Manufacturing gauge disappointed the market remaining near the 48 reading, Chinese PMI, in contrast, were able to climb above the 50 boom/bust level last month.

It’s still unclear if two sides are willing to engage in a war of attrition, but the markets are certainly priced for the opposite scenario. Some of the biggest beneficiaries of the recent risk rally have been the antipodeans with kiwi especially strong since the start of the week. Investors have flocked to the commodity dollars on the assumption that a thaw in US-China trade relations would preserve the positive yields on the currencies keeping both RBNZ and RBA on the sideline for the foreseeable future.

Indeed last night’s RBA statement was relatively sanguine noting that, “After a soft patch in the second half of last year, the Australian economy appears to have reached a gentle turning point.” That view could quickly change, however, if risk assets decline further and erode confidence in the already shaky housing market. Australian data continues to show weakness as do the number from New Zealand and we wonder if the markets may have greatly overestimated the risk rally.

Aussie continues to hold support above the .6800 figure while kiwi has broken out above .6450 resistance so the momentum is on the side of the bulls, but if US data later this week continues to disappoint then the downward pressure on risk assets could resume unwinding much of the recent gains in the pairs.