Friday trading rules in play. There is a sense of glum relief today with the same-old hash of headlines about geopolitics driving markets. This obscures a few key technical moves that maybe more important for next week and the new month ahead. The economic news was light overnight with lower than hoped Japan CPI and unrevised German GDP. That yawn left markets reading between the lines. The political and policy stories that drove markets are listed below:

  • Australia gets its 6th Prime Minister in 10-years as the Liberal Party fractures widen. Turnbull ousted by Morrison. Treasurer Morrison won the run off to become the new PM after Foreign Affairs Bishop lost the first round and Dutton lost the second. Morrison is viewed as more fiscally responsible than Peter Dutton. What maybe more important is the new PM approach to China and the US. 
  • China/US trade talks end after 2-days with little progress. China’s MOFCOM stated that they. had constructive and honest talks on trade matters, with communication lines set to be kept open and active going forwards. US deputy press secretary said the US and China exchanged views but didn’t say that any serious progress was made. 
  • Trump has been advised against pardoning Paul Manafort, while the NYT suggests that the Manhattan D.A. is eying criminal charges against the Trump Organization over hush money payments revealed by Cohen guilty plea.
  • Riksbank points to rate hikes before the end of the year – ignoring political uncertainty
  • Italy PM Di Maio warns it will suspend EU funding if further steps on immigrants not taken. 
  • FOMC Powell speaks today on “Monetary Policy in a Changing Economy” with much focus on Fed independence post Trump comments. There are no ECB executive board members attending the event nor is BOJ Kuroda – the two mainstays of QE. 
  • No-deal Brexit fears remain in play with Chancellor Hammond warning of GBP80bn hole

    • The fear focus today remains on US rates with US 2Y higher after Dallas Fed Kaplan talked of 3-4 more hikes in the next year while Atlanta Fed Bostic said growth in the US remains above potential. The US curve continues to flatten and drives fears for recession risks into late 2019 something that many see Powell addressing today.On the inflation front, the story is changing in 3Q with oil bouncing off its 200-day moving average and set up for its first weekly gain in two months – something that is new and worthy of much thought today.Oil found a bid on US inventory draws, a strike in North Sea oilfields and ongoing Iran tensions with the US. Fear of demand destruction over global trade and US sanctions and higher rates.Oil is the risk barometer to watch today as the USD waffles in consolidation, bonds remain stuck in ranges and equities search for a new hash to chew on into the weekend of central bank discussions from Jackson Hole.

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