The prospect of a recession dragged the dollar lower, while fading optimism after last weekend’s trade truce boosted the yen across the board.
- U.K.’s BRC retail sales monitor slips by 0.5% vs. 0.1% growth in October
- Australia’s current account deficit narrows down from 12.1B AUD to 10.7B AUD in Q3 2018
- RBA keeps rates at 1.50% for another month in December
RBA’s policy decision
As expected, the Reserve Bank of Australia (RBA) kept its interest rates steady at 1.50% for a 28th consecutive month in December.
While the central bank is still concerned over the impact of high household debt and low household income on consumption, it’s still optimistic over the economy overall.
Specifically, it expects growth to average 3.5% before slowing down in 2020. It also expects further reduction in the unemployment rate, while inflation is expected to gradually pick up to 2.25% in 2019 and a bit higher in 2020.
Governor Lowe and his team won’t be making policy decisions until February, so the positive note to end the year helped stem the Aussie’s losses against some of its counterparts.
U.S. yield curve drama
The biggest story of the hour is the yields on the U.S. 5-year note finally falling below its 3-year counterpart.
BFD, since this is a sign that investors believe that the government is LESS LIKELY to pay its shorter-term debts than its longer-term ones.
Yields on the 3- and 5-year notes may be the first inversion to occur since the financial crisis, but market players think it’s only a matter of time before the more closely watched 2- and 10-year notes meet the same fate.
See, analysts point out that an inversion of the 2- and 10-year yields could herald the next recession. Duhn duhn duhn.
While not all inversions have led to a recession, every U.S. recession since the end of World War II (all nine of them!) have always been preceded by inversions, with an average lag time of 6 to 24 months.
Mixed risk sentiment
The post- truce party is starting to wind down for Asian session market players, as more and more analysts are growing skeptic of the possibility of U.S. and Chinese reps to resolve trade-related issues within the 90-day truce period.
It also didn’t help that we have yet to see deets on the agreement made over the weekend. A White House official, for example, shared that the 90-day truce will begin on December 1 even as Larry Kudlow shared that the clock will start on January 1.
- Nikkei is down by 1.07% to 22,333.4
- A SX 200 is down by 0.48% to 5,723.6
- Shanghai index is up by 0.04% to 2,655.961
- Hang Seng is down by 0.26% to 27.112.0
Commodity prices were a little more bullish, with gold taking advantage of souring risk sentiment and lower dollar demand while crude oil benchmarks continue to gain support from the possibility of an extended production cut deal between Russia and OPEC next year.
- Gold is up by 0.42% to $1,235.58
- Brent crude oil is up by 0.81% to $62.30
- U.S. WTI is up by 0.92% to $53.55
Major Market Mover(s):
What waning risk appetite? Kiwi bulls kept the party going as they extended yesterday’s rally to push the comdoll higher across the board.
NZD/USD is up by 32 pips (+0.46%) to .6958; NZD/JPY is up by 12 pips (+0.15%) to 78.84; NZD/CHF is up by 24 pips (+0.35%) to .6935; NZD/CAD is up by 32 pips (+0.34%) to .9172; AUD/NZD is down by 30 pips (-0.28%) to 1.0590; EUR/NZD is down by 45 pips (-0.28%) to 1.6342, and GBP/NZD is down by 59 pips (-0.32%) to 1.8307.
The inversion of short and long-term Treasury yield curves brought back recession flashbacks for a lot of traders. The prospect of a recession, together with fading optimism over last weekend’s Trump-Xi trade truce, weighed on the dollar.
USD/JPY is down by 35 pips (-0.30%) to 113.30; USD/CHF is down by 11 pips (-0.11%) to .9967; GBP/USD is up by 14 pips (-0.11%) to 1.2738; AUD/USD is up by 11 pips (+0.15%) to .7368, and EUR/USD is up by 19 pips (+0.16%) to 1.1371.
The dollar’s sharp decline and a bit of good ol’ risk aversion brought the market bulls to the low-yielding yen’s yard during the Asian session.
USD/JPY is down by 35 pips (-0.30%) to 113.30; EUR/JPY is down by 20 pips (-0.15%) to 128.83; GBP/JPY is down by 27 pips (-0.19%) to 144.32; AUD/JPY is down by 13 pips (-0.16%) to 83.48; CAD/JPY is down by 17 pips (-0.20%) to 85.95, and CHF/JPY is down by 20 pips (-0.17%) to 113.67.
Watch Out For:
- 7:45 am GMT: France’s government budget balance
- 8:00 am GMT: Spain’s unemployment change (34.2K expected, 52.2K previous)
- 8:15 am GMT: Switzerland’s CPI (-0.1% expected, 0.2% previous)
- 9:15 am GMT: BOE’s Carney to give a speech in London
- 9:30 am GMT: U.K.’s construction PMI (52.5 expected, 53.2 previous)
- 10:00 am GMT: Euro Zone’s PPI (0.5% expected and previous)