Renewed optimism on global trade and the somewhat supportive Q3 US earnings season continue to support risk assets.
Outside of oil risk assets are in a happy place today riding what might be the beginning short-term temporary 'reflationary wave.'
What's Happening With Oil?
Brent was the most energetic cross-asset performer last week, suggesting that trade talks and inventory draws are factored into the current price. So, for oil, in particular, where the market remains beaten down by demand concerns, traders could be waiting for signs that the economic data is bottoming, and the inventory surpluses are decreasing before fully committing to the long risk-on positions.
PBoC
The People's Bank of China skipped open-market operations again Tuesday, effectively draining 250 billion yuan ($35 billion) in liquidity from the financial system.
Despite the current selloff in China rates, the PBoC still skipped the open-market operation for the second straight trading session and the cull in short term cash comes at a time when the global bond market is under pressure amid moderation in risk aversion as US-China tail risk fade.
The central bank seems to be tightly managing liquidity in a very cautious manner.
These fine-tuning operations highlight the dilemma faced by the PBoC at the moment. It wants to continue lowering the borrowing cost to the real economy, given the downward pressure on growth, but the scope is reduced by rising inflation
Yuan
Not surprisingly, the positive US-China phase one trade signals have not triggered an all aboard the yuan rally bus. Given China's weak economic outlook in the absence of a rollback of existing tariffs, which is the crucial precondition for a test of 7 USD/CNH, traders may be inclined to hang on to their long USD bias against the yuan. Many analysts are still expecting an eventual test of 7.20-7.30 as China's economy continues to struggle along with the thought that when the US and China get down to the meat of the matter around IP and technology transfer grievances, trade talks could go incredibly sideways.
Regional news
Good news on the regional North-South trade war front South Korea and Japan are studying plans for a joint economic program to ease strains over the issue of forced Korean labor in World War Two, Kyodo news reported
Currency Markets
Well, Singapore is back, but the EFX engines are still sputtering with only 2 and 3's (millions) getting turned in another uninspired morning session in Asia. I suspect G-10 trade consolidates here until the market gets their first glimpse of the FOMC forward guidance and if the board adopt some form of average inflation targeting strategy.