E Markets Reactions

Colors, like features, follow the changes of the emotions. Pablo Picasso. 

Reactive policy sometimes feels like you are always waiting for the next surprise explosion with all the colors of glory red or black. The FOMC minutes yesterday extended the feel-good moment for risk takers as they saw the Fed reactive to financial conditions again – affecitionally called the Powell Put. Today the mood turns as the rally up from Christmas Eve looks like and over-reaction to this story. There was no resolution to the US/China trade talks. This despite comments from China that progress was made on intellectual property and technology. Also the link of the present US government shutdown to any deal timing is in doubat as Trump suggested he will skip Davos (and perhaps a Chian deal) if there is no border wall money. The US shutdown is beginning to show up in air ravel concerns and in the cash-flow of 800,000 government workers as they pay their mortgages. The USD is at 3-month lows and breaks two big levels with CNY below 6.80 and EUR over 1.15  The turnaround in mood was a reaction to the weaker data from China CPI/PPI to lower Japan LEI to weaker French manufacturing and weaker UK retail sales, throw in more worker layoffs in Europe from Ford and you get the picture. Not all the news was ugly with China or EM. 

1)  China will cut taxes on manufacturers for 2019 according to State TV. 

2)  Taiwan’s Premier Lai resigns along with cabinet after DPP losses in local election – as expected. This leaves some room for China flexibility post Xi Taiwan comments.

3)  Saudi issues $7.5bn of 10Y and 30Y debt with good demand despite oil prices and Khashoggi issues.  

The reactions of the market today to news is interesting and the contrast to the previous 5 trading days will be important. The FOMC minutes helped risk yesterday, will the ECB minutes do the same today? The EUR/USD chart maybe a good place for US traders to start as we wait for more Fed speakers and more interest rate sensitive data – like new home sales. Watching 1.1635 for a larger USD move. 

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