Overview: Japanese and Canadian markets are on holiday today. While the US bond market is closed, equities maintain their regular hours today. Asia Pacific equities rallied, led by 1% of more gains in China, Taiwan, South Korea, and Thailand. The buying did not continue in Europe, and after a 2.3% rally before the weekend, the Dow Jones Stoxx 600 is about 0.75% lower in the European morning. US shares are trading slightly heavier, and the gap in the S&P 500 created by last Friday's sharply higher opening is worth monitoring (~2948.5-2963.1). Benchmark yields in Asia Pacific were pulled higher by the rise in US yields at the end of last week, while European yields are coming back softer, with core rates off a couple for basis points. UK 10-year Gilt yields are off around seven basis points on the lack of progress over the weekend with Brexit talks, which dragged sterling lower. The Antipodean and Scandi currencies are off 0.4%-0.5%, while sterling is nearly 0.75% lower. The Japanese yen and Swiss franc are steady to firmer. Among emerging market currencies, the Turkish lira is the weakest, off about 0.5%. East and Central European currencies are softer, while Asian currencies are mostly higher. The Singapore dollar firmed after a slight easing by the Monetary Authority, and the dollar fell below CNY7.05 briefly for the first time since August 19. Oil is trading around 1% lower, while gold is steady.Mr. Chandler did not take the weekend off:
Asia Pacific
Chinese coverage of what the US has dubbed "phase one" of a trade agreement was not nearly as ebullient. Nothing was signed. China will buy more agriculture products from the US, which it has long been willing to do. It has a food shortage, and this is evident in today's trade numbers and will likely be seen in the CPI figures due tomorrow. The US will not go forward with the increase in tariffs on around $250 bln of Chinese goods from 25% to 30%, which we have argued was largely symbolic. If a good is not competitive with a 25% levy, a 30% level or a 50% level makes a marginal difference at best. Trump and Xi are to meet on the sidelines of the APEC meeting next month. The mid-December tariff on about $160 bln of Chinese goods, which have not been subject to a punitive tariff, is what is in play.
China's imports and exports were weaker than August and lower than expected. The trade surplus widened to $39.65 bln in September from $34.78 bln. Exports were off 3.2% year-over-year after the 1.0% decline in August and forecasts for a 2.8% decline. Pork imports are 44% higher from a year ago, and beef imports are 54% higher, but overall imports contracted 8.5% in September following a 5.6% decline in August. The median forecast in the Bloomberg survey anticipated a 6% decline. The surplus with the US (~$26 bln) is roughly two-thirds of China's surplus. Exports to the US are more than a fifth lower (22%) from a year ago, and imports from the US are down 16%. What is not told in these numbers are the exports from China to the US that are made by US companies in China. Separately, China reported auto sales fell 6.6% year-over-year in September, the 15th decline in the past 16 months.
Singapore Monetary Authority took a small step toward easing policy for the first time in three years. It conducts monetary policy through its currency and slightly reduced the appreciation of the foreign exchange band. It left unchanged the band's width and the level within the band. The move was widely anticipated, even before the news that the economic growth was half as much as expected in Q3 (0.6%), which put year-over-year growth at a meager 0.1%. About a third of the economists polled by Bloomberg expected a more aggressive easing of policy. The Singapore dollar gained about 0.3% today, in line with the Chinese yuan and the South Korean won.
The dollar has been confined to within a 20-tick range on either side of JPY108.35 as it consolidates last week's 1.25% rise. There is an option for almost $430 mln at JPY108.50 that expires today. We suspect the risk is on the downside now and look for the JPY108 area to be tested in North America. The Australian dollar has unwound most of its pre-weekend gains. Initial support may be seen near $0.6750, which also corresponds to a (61.8%) retracement of the gains from the second half of last week. The neckline of a possible head and shoulder bottom pattern, we noted, is near $0.6740, and it is not usual in the pattern to come back and retest the breakout.
Europe
The optimism that spurred the powerful short-squeeze in sterling was slapped by the cold hand of realism over the weekend. Johnson's plan was present to the cabinet as the EC negotiators were far from satisfied.The UK is offering a complex dual customs system that seems to turn Northern Ireland into a Schrodinger's cat that is both in the UK's customs territory for some goods, depending on the final destination, or the EU's customs territory. Officials were reluctant to recognize it as a break-through. Some cautioned that it would undermine the EU customs code, while others were skeptical that it would be approved by Parliament as Johnson himself objected to a vaguely similar plan when offered by former Prime Minister May. Contrary to Johnson's expectations, the EC is not capitulating. Time is running out ahead of the EU summit later this week. An emergency summit on October 29-30 remains a distinct possibility....
October 13
Dollar Struggles and Key Levels Approached
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Same Three Drivers in the Week Ahead but Changing Tones
