EC Animal Spirits Remain Animated

After reversing lower yesterday, the euro's losses were extended a little through $1.1115 in early Asia and recovered toward $1.1140 by the start of the European session. Important resistance is seen in the $1.1175-$1.1180 area, and if it cannot be surmounted shortly, building corrective pressures will express themselves. A break of the 20-day moving average, just below $1.1100, would be the first indication. Sterling has mostly been confined to a quarter of a cent below $1.29. There are chunky options fro GBP1.75 bln between $1.2890 and $1.2900 that expire today. There is another option for about GBP750 mln at $1.2950 that will also be cut today.  

America

Reports indicate that phase 1 of the US-China trade, which the Trump Administration had previously announced was in the bag, has a new wrinkle. China is demanding that the US lift the tariffs (15%) imposed on September 1 on $112 bln of Chinese goods, which included a range of consumer goods (e.g., clothing, appliances, flatscreen monitors). Recall that the tariffs were announced over the objections of some of Trump's advisers. The press reports suggest the issue is in Trump's hand. Although the administration is fond of claiming that China wants a deal more than the US, Trump has seemed increasingly eager, and some gesture appears likely. 

Since the recent FOMC meeting signaled a pause after the three rate cuts, the market has been trying to determine where the bar is for further action. The answer was provided by San Francisco Fed President Daly yesterday and seemed to be echoed by other officials. Simply stated, there were have to be a material change in the outlook. The outlook does not change "materially" by any single piece of high-frequency data. It will take several months. Still, Daly hinted at one area that will be monitored closely, noting that inflation expectations are drifting lower. Today, Barkin, Kaplan, and Kashkari speak. None are voting members of the FOMC this year.  

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Read more by Marc on his site Marc to Market.

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Bill Myers 1 year ago Member's comment

Great read.