a pause in trade rhetoric brings relief for risk markets….for now (Monday)

Risk ripped higher to start the week, after President Trump tweeted that recently announced 10% tariffs on over $200BN in Chinese goods would be suspended for up to 90 days while negotiations take place; Trump tweeted that China agreed to “reduce and remove” their 40% tariff on American automobiles, although no such confirmation has come from the Chinese yet. Asian equities rallied, US equity futures ripped higher, and risk was buoyed globally. As of 8 AM ET, US fixed income bear flattening 2.5-3 bps worse than Friday’s 3 PM marks, while US equity futures point to a 1.5-2% higher open for now.

In other news, the funeral for President Bush on Wednesday will result in US equity and fixed income markets being shuttered for the day. US equity futures will trade on the CME for a normal open on Tuesday night, December 4, but will shutter at 9:30 AM ET on Wednesday, reopening for their regular evening session later that day; cash equities will be closed all day. All CME FI and US Treasury/swap markets will close normal time on Tuesday evening (5 PM ET) and reopen on Wednesday night, with futures following the same map. CME expirations scheduled for Wednesday will now be moved forward to Tuesday.

Back to the markets, we reopened in Asia with risk on the front burner. Hedge funds were early sellers of cash 10s and other levered types sold US and TY contracts. There was some Japanese bank interest to receive in front end of USD swap curve, but very quickly the interest turned to paying in the belly, both outright and on the curve via 5s30s swap flatteners. Asian central banks took advantage of the back up in yields to add 2s and 3s and RV accounts took small profits in 5s30s flatteners on the Treasury curve. Japanese bank added some 10s (of course, that’s all they do these days) just before Tokyo lunch. Volume numbers were large but activity was orderly after fixed income repriced. Once Tokyo lunch hit, Treasuries traded sideways 2-3 bps higher in yield from 3 PM Friday marks and 4-5 bps higher from their 5 PM closes. Locally, JGBs were underpinned by this week’s buyback schedule but the rest of Asian/Pacific fixed income backed up 3-4 bps. Asian equity bourses were 2-3.5% better, with China leading the move, even though NIKKEI only gained 1%.

Europe was a tamer affair after the repricing of Treasuries, with US Treasuries being dragged higher during the European morning, even in the face of decent UK and European manufacturing PMI data. There was macro fund receiving in USD 10y swaps, RV buying of TYH contracts against RXH after the manufacturing PMI reports, and fast money selling of bunds and TY contracts, in some cases against gilts. Italy has put in a decent day on the combination of the risk move and talk that Italy may be prepared to accept the 2% deficit target (hmm, 2% Italian GDP and a trade deal all in one weekend??? No comment). Flows turned to some minor portfolio selling ahead of the NY arrival in FV and cash 5s, with some deal-related paying going through in USD 10y swaps.

Today brings us Markit PMI at 9:45 AM ET, followed by construction spending and ISM at 10 AM; vehicle sales will be released throughout the day. There will be several Fed speakers: Quarles speaking now, Williams at 9:15 AM ET, and Brainard at 10:30 AM ET. More focus will probably be on what will happen with Powell’s scheduled JEC testimony (and the pre-release of his remarks!) currently scheduled for Wednesday.

Well, we got our retracements, at least for now. Interesting that eminis traded to just short of resistance (2814.00 high, resistance at 2817/18) before backing off during the later European morning. In fixed income, it was nice to back up, but we couldn’t get through any meaningful support levels as of yet, with everyone eyeing these trade tweets cautiously and also considering the NFP report at the end of the now disjointed week; we couldn’t even tag aggressive support at 119-04 in TYH for goodness sakes. For choice today, call the range in TYH at 119-16+ to 119-04, with risk that we see more short covering early today which takes us to bottom of value from Friday before we make an effort to rally risk later in the session and finally at least test this 119-04 level. Then again, if eminis trade back to unchanged, it will definitely not be a good day. As for support in TYH below 119-04, watch 118-27/28, 118-21, 118-19; resistance comes in at 119-12, the aforementioned 119-16 level, 119-20, 119-24, 120-03.

Enough for now….have a great Monday,