E Yin And Yang

The good beat the bad headlines today driving another rally up in risk with hope for a US/China trade deal continuing in the background and a tentative US political deal for funding the border security, thus keeping the government open. Avoiding trouble isn’t the same as doing good and that is the point of risk for today.  Hope overlays against greed as positions remain moderate in a world still filled with fear.  Here are some bad stories that stand out from the overnight: 

  • China warns on reduced consumption demand in 2019: “The medium- to long-term accumulated contradictions and risks throughout economic development are going to become more prominent in 2019,” Wang Bin, a commerce ministry official told reporters during a briefing. “The pressure facing the consumer market will increase and consumption growth is very likely to slow further.”
  • North Korea may have made even more nuclear bombs. According to Standford University’s Center for International Security report, North Korea has continued to produce bomb fuel while in denuclearization talks with the United States and may have produced enough in the past year to add as many as seven nuclear weapons to its arsenal.
  • China debt defaults rising.  The debt guarantees for private companies are under scrutiny. “There is a severe imbalance between private companies’ contribution to the Chinese economy and the financing that they get. They account for 50 percent of taxes, 60 percent of GDP, 80 percent of urban jobs and 90 percent of new hires, but only receive 25 percent of loans disbursed,” Yang, a former Chinese banking regulatory official, told Reuters. “If private companies don’t have other sources of funds to repay their debts or collateral, they have to find guarantees, which will add 2 to 3 percentage points to their financing costs,” he said.

Later today we get the UK May Brexit talk update and noise with all its risk for GBP and EUR. Then we get the RBNZ decision, where most expect a similar dovish tilt from Governor Orr to keep up with RBA Lowe. But most of all, markets are paying attention to the CNY and USD today as they are the barometers to risk even if the correlation has faulty causality. The USD index isn’t collapsing even as equities hold bid. Perhaps that is a warning signal, or perhaps its just another noisy indicator lost in the turn of Yin and Yang news flow with the real story about CNY and EUR weakness.  

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