US-China trade talks concluded yesterday with Mnuchin and Liu He agreeing on ‘constructive talk’ in their statements, which they will continue next week. So on this front, the good news is already priced in. S&P500 has been climbing up as if nothing is going wrong, Asian stocks have also performed well this week.
But the color on the other side of the market doesn’t paint a cheerful one. US 10yr Treasury dipped below 3-month paper this week, the usual indicator for a recession, the last of which we saw back in 2007.
USDTRY became the highlight this week in the currency world with a swing of 5% and overnight borrowing that shot up to 1000% – yes it’s 1000%! Neither the actual economy nor its prospects seem to do too well, the impasse on the Brexit deal after May’s proposal being rejected again at Parliament is only aggravating further the vulnerable European economy, while US-China trade talk hasn’t really concluded with an agreement that will propel the economy to the upward projection. EURUSD has dropped more than 100bp as well as NZDUSD (after dovish RBNZ stance) – so yes, macro speculators are weary for a good reason.
The price action can be a mixture of real economy and sentiment intertwining with each other for the coming week. Headlines on more good news from the trade-talk can simply be reversed by actual economic data and especially if US Non-farm payroll this Friday confirms any weakness in the US economy. For the macro-inclined traders, it seems the market will give a whipsawed zig-zag opportunity – take the small profits and run!
