The storyline for the week has been China trade talks and a stable CNY versus Turkey defiance as it goes its own way to fix the TRY and economic crisis as it battles the US over a jailed Pastor.  The US Treasury Mnuchin threat for more sanctions on Turkey at the US close has led the TRY off 6% back to 6.20 on the day and so risk in Europe is lower. This offset hopes in Asia that the US/China talks in the next few weeks might lead to something, that the CNY stability is a peace offering and that Trump said NAFTA negotiators need to take their time to strike a deal. China shares maybe a better guide as they fell again. While the calm today has been attributed to the mixed hopes above after a volatile week, the answers aren’t satisfying.  If you want more creative explanations for the markets perhaps ask your kid why the window is broken. Better even still read about how broken windows lead to lower morale.  

The answer for the price action today returns to the mundane. There was little economic data to move markets either – Japan’s Reuters Tankan was better for manufacturing despite trade fears while services were worse. Korean jobs fell and the Moon government may feel some heat on the economic front RBA testimony from Lowe and a speech from Ellis didn’t move markets either. The HICP final reading for Europe was unrevized and as expected. This leaves the market watching US/China trade talk hopes, Turkey and its reactions to more US pressure – watch S&P today for a downgrade on the debt, and the upcoming Putin/Merkel meeting tomorrow for headlines. US data is light – with preliminary University of Michigan Sentiment likely to show some dip, Canadian CPI will be the main focus with most fearing higher locking in a BOC rate hike again. FX is in consolidation with the focus on EM still but the risks in Europe – with EUR set for more trouble – that is the place where risk remains – as Italy continues to trade poorly and the ECB/debt dynamic looks most at odds with the explanations above. Watching 1.1250 for 1.10 still as the target against 1.15 resistance.

Question for the Day: Is the risk mood USD dependent? The relationship of a stronger USD to EM and DM stock prices has been notably correlated of late. This maybe about to change. The rally up in fixed income overnight is based in part on the weaker US data – particularly from the Philly Fed – with little chance that the markets are going to find the right balance today. Regional Fed Surveys are pointing to a weaker US ISM. This means 3Q growth outlooks will be moderating and the effect of EM pain on FOMC thinking may have more importance. All of which shows up in the USD.