Fresh from cutting the 7-day repo rate on Monday, China has shaved 5bps of its 1-year and 5-year Loan Prime Rates this morning to 4.15% and 4.80% respectively. It seems clear that China isn't waiting around for an interim trade deal to be signed and is cranking up the revolutions on the stimulus engine sooner rather than later as its economy slows.
Overnight the US Commerce Secretary commented that he was still optimistic that they could get "something done" with China but that a deal was still "a work in progress." The comments have left me with more of a putting a brave face on things feeling, as opposed to the much more upbeat rhetoric we have heard from Washington DC in the past few weeks.
The timetable for rolling back tariffs is clearly a sticking point for both sides, with frankly, a complete lack of detail thus far on the nuts and bolts of the interim agreement. That ties with the rather sanguine comments on trade progress from the China Ministry of Commerce over the weekend.
Things have got somewhat more complicated this morning after the US Senate unanimously passed a bill backing the Hong Kong protestors. The US House of Representatives has also passed their version of the law. Assuming the Senate and House can combine their bills, it would mean that any veto from President Trump would be nullified. China has, unsurprisingly, condemned the Senate's actions this morning as blatant interference with China and Hong Kong's internal affairs.
With China now clearly on an easing path regardless of any agreement, and as the US Congress throws their own political curveballs, markets should rightly be nervous about the state of trade negotiations. Wall Street stubbornly clung to its gains overnight, but other markets appear to be jumping ship with oil under the pump, and gold inching higher.
With the trade talks remaining the only macro-economic game in town, a US December 15th tariff deadline rapidly approaching, an angry China and a US President neck-deep in an impeachment battle, the risks of a material correction lower on the global recovery trade continue to ratchet higher.
The data calendar globally is strictly tier-2 over the next 24 hours, meaning that markets will be more susceptible than ever to the nuances of trade sentiment, for good or for ill.
Equities
Wall Street has a mixed night with weak earnings from Home Depot (NYSE:HD) and Kohl's sapping sentiment. That said, Wall Street is nothing if not stubborn, and refused to buckle under the pressure. The S&P 500 fell 0.06%, the Nasdaq rose 0.24%, and the Dow Jones fell 0.37%. US Treasury yields probably assisted stocks, continuing to ease with the 10-year dipping under 1.80%.
Wall Street closed before the US Senate announced the passing of the Hong Kong Bill, leaving Asia to digest its immediate consequences. That reaction does not look positive with the Nikkei 225 falling 0.53%, the Kospi falling 0.98%, the Straits Times off 043% and the ASX flat. Hong Kong and China, having mysteriously defied the rest of Asia's caution this week, look to be finally coming into line. Shanghai is lower by 0.30%, the CSI 300 has fallen 0.40%, and the Hang Seng is off 0.90%.
China's strong rebuttal of the US Senate's actions will likely keep Asian stock markets under pressure today, particularly Hong Kong, as worries increase that a belligerent China may lose interest in an interim trade deal.
Currencies
USD/CNH has risen by 0.10% to 7.0330 this morning on China nerves. USD/CNH has technical resistance at 7.0350, and a daily close above this level opens further rallies, although it will remain at the mercy of intra-day trade sentiment.
The trade-sensitive AUD and NZD are both lower by 0.20% to 0.6815 and 0.6415, respectively. Regional Asian currencies have mostly eased slightly against the greenback in early trading, spooked by worries over the trade negotiations.
GBP/USD once again attempted to rally towards the 1.3000 regions and once again failed in its efforts overnight. Sterling finished the session 0.25% lower at 1.2925. The 1.3000 technical resistance looks more robust by the day, implying we will need more clarity on the UK election result if Sterling is to challenge it seriously. On the downside, 1.2900 technical support looks in danger with GBP easing to 1.2910 this morning. A break of 1.2900 implies a deeper correction and a clear-out of Brexit longs.
Oil
Oil was unceremoniously crushed overnight with Reuters reporting that OPEC+ are unlikely to deepen production cuts at their December meeting. Brent crude fell 2.45% to $60.70 a barrel, and WTI fell 2.95% to $55.20 a barrel. Oil was caught in a perfect storm last night, as a still very long speculative market was caught out by OPEC+ and trade nervousness, plus a massive US API Crude Inventory increase of 5.954 million barrels.
Both contracts are now sitting at the bottom of their 6-week technical up-trends. In WTI's case, support is very near at $55.00 a barrel. A break of this level or $60.00 on Brent signals the downside correction could have a lot further to run.
Oil markets will be nervously watching the official US Crude Inventory data this evening with an increase of 1.06 million barrels expected. A number that substantially exceeds that could be the straw that breaks the camels back.
Gold
Gold rose 0.10% to $1472.00 overnight, having held an initial pullback to $1465.00 an ounce. Gold is benefitting from a move into haven positioning on trade nerves, as well as US treasury yields continuing to track lower.
Technical resistance at $1475.00 and $1480.00 is nearby though and will be a formidable region to overcome. A daily close above the latter implies a rally to $1520.00 an ounce is possible, as short-term bearish positioning is squeezed out. That is a large "if" though with more momentum for gold likely to be required. Either in the shape of a deterioration of trade hopes or a material equity market correction lower, or both.