E Markets: Flat

The world isn’t flat but it’s easy to look at pictures and think its true. The lesson being that where you observe things matters to how you interpret them. If you look at macro – nothing happened today – if you look at stocks there was a modest take-profit shift driving more risk-off than the recent risk-on as we trade at 2900 S&P500 – with big number rules in play. Flat isn’t quite the right word to describe the mood but its clearly the US focus with an obsession about the shape of the yield curve and what it forecasts for US growth and policy dominating another slow news day. Here are a few non-economic headlines that mattered today:

The Canadian Globe and Mail said Trudeau was ready to make dairy concessions to get a NAFTA deal. CAD remains on a tear stronger with 1.25 targets and positions long USD vulnerable.

Australian Westpac Bank hikes mortgage rates – first big lender to act. They move rates up 0.14% with variable rate mortgages now 5.38%. The move by Westpac follows interest rate hikes from more than a dozen smaller banks in recent months. Australian government bonds rallied on the story and sent A$ lower.

Turkish central bank doubles banks overnight borrowing limits – TRY trades off again down 3% with 6.20 now key USD support and 6.50 pivotal. The market support for TRY rests on WSJ story of Germany considering offering Turkey financial aid, while the action of the CBRT smacks of desperation.

UK and EU officials see mid-Novemberas new deal deadlinefor Brexit. A November deadline would imply the EU calling an emergency EU summit during that month, though an EU official said there was no firm plan to do so yet. Leaders are due to discuss Brexit at a summit in Salzburg in the middle of September and then again at the October meeting in Brussels. Net effect has been GBP is doing better as talks seem to be in earnest.

What is notable for equities is the return of CNY correlations to stocks. The 6.80-6.90 range in USD/CNY holds and that means that other stories matter as above. CNY weakness was related to trade fears and growth doubts in China, which haven’t changed, but the Beijing attitude to FX and the squeeze in month-end rates maybe has. Overnight economic stories were weaker with Japan Consumer Confidence at 1-year lows, French Consumer Spending weaker than expected. There isn’t much to trade on until the US opens with the USD weakness and “goldilocks” arguments needing something else to boost confidence. Focus remains on the big shift in thinking about the non-threat of Turmp tariffs – a bluster for more bilateral deals. The US-Mexico trade deal as a global tailwind puts MXN into the spotlight again for all EM risk plays. CAD is in a catch-up mode and the MXN/CAD spread clearly is worth watching today.