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Risk appetite made quite a comeback on speculations that the U.S. could ease its protectionist moves against China, thereby lowering the risk of a full-blown trade war.

Because of that, higher-yielding assets likes stocks closed significantly higher while safe-haven ones like the dollar and yen lagged behind.

  • FOMC member Dudley focuses on regulation, does not comment on policy
  • FOMC member Mester: Further rate hikes this year and next
  • Mester: Gradual tightening avoids overheating
  • Mester: Higher tariffs and NAFTA talks pose risks on outlook

Major Events/Reports:

Return of risk-taking?

Headlines from early in the session signaling that the U.S. might be willing to reach a compromise with China on tariffs eased fears of a full-blown trade war taking place. Stock indices closed sharply higher:

  • Dow 30 index is up 669.40 points to 24,202.60 (+2.84%)
  • S&P 500 index is up 70.29 points to 2,658.55 (+2.72%)
  • Nasdaq is up 227.88 points to 7,220.54 (+3.26%)

In particular, tech-related stocks led the gains, with Intel shares drawing support from speculations that China could buy more chips in exchange for keeping tariffs unchanged.

Interestingly enough, gold held on to its winnings while crude oil was still in the red.

  • Gold is up to $1,353.70 per troy ounce (+0.28%)
  • Silver is up to $16.710 per troy ounce (+0.77%)
  • WTI crude oil is down to $65.50 per barrel (-0.58%)
  • Brent crude oil is down to $69.50 per barrel (-0.44%)

Remarks from FOMC members

Policymakers Dudley and Mester had testimonies scheduled during the U.S. session but only the latter had some words to say on economic outlook and monetary policy.

Cleveland Fed President Loretta Mester, who as been one of the more hawkish members, said that she sees the central bank hiking rates this year and the next in order to prevent the economy from overheating. However, she also suggested that the Fed could adjust its tightening pace to risks stemming from a potential trade war or from NAFTA talks.

She explained:

 “Assessing the impact on the U.S. macroeconomy will ultimately depend on how other countries react, including whether they impose their own tariffs or other trade barriers in response.”

Mester went on to highlight positive developments in the labor market and in consumer spending but acknowledged that getting inflation back to target levels has been a challenge.

Major Market Mover(s):

USD & JPY

Higher-yielding currencies snatched pips from the lower-yielding dollar and yen, with the U.S. currency having a slight advantage on hawkish Fed-speak.

EUR/USD is up to 1.2446, GBP/USD is up to 1.4228, AUD/USD advanced to the .7750 mark, and USD/JPY is up to 105.40. NZD/JPY was in the lead at 76.91, EUR/JPY ran up to 131.24, GBP/JPY is testing the 150.00 handle, and AUD/JPY is up to 81.66.

Watch Out For:

  • 12:10 am GMT: FOMC member Quarles has a speech
  • Tentative: Australian HIA new home sales (-2.1% previous)
  • 1:45 am GMT: RBA Assistant Gov Kent’s testimony
  • 6:00 am GMT: BOJ core CPI y/y (0.7% expected, 0.8% previous)