ASIA MORNING: Trump Announces Mini-Deal

The accumulation of US-China headlines on face value and Trump's announced partial trade deal should help prop up risk sentiment coming into the new week and bode well for risk assets in general. Trump spoke late Friday evening saying that "good things are happening at China trade talk meeting" and that there has been "warmer feelings than in the recent past, more like the old days". Tariffs that were due to come into effect on Tuesday (Oct 15) are expected to be suspended for the time being while previously imposed tariffs or the set of tariffs scheduled for December see no impact from the "substantial phase one deal", like we've said previously.
 

The partial trade deal as reported by Bloomberg purportedly covers intellectual property, financial services and agricultural. The former would represent a meaningful breakthrough on one of the core grievances that have seen ongoing US-China trade negotiations at an impasse. However, one thing to note is that the deal is yet to be put in writing and details are light. Therefore, the informal nature of it does potentially leave an unsatisfying taste in the mouth of market participants and put some downside pressure on risk assets in general. With S&P 500 Futures only 50 or so points off all-time highs; we could see retracement back into the 200D-MA around 2,930 at some point. Though, to balance that, the VIX at 15.58 having come off October highs suggests equities may very well maintain their positive momentum and push higher. 


VIX (orange, RHS). E-Mini S&P500 Futures (purple, LHS). Source: Eikon
 

Last Friday's Canadian jobs report weighed on USDCAD to the tune of 70pips or -0.5% and drove its G10 outperformance. A moderate rise in jobs was expected, but instead, consensus was knocked out of the park with around 54k jobs added in September driven by full-time employment and the unemployment rate lower at 5.5% (prior 5.7%). The overall result reaffirms market expectations for BoC to be neutral on monetary policy going into the end of the year. Expectations for an October hold have ticked higher and are currently priced in at around 94% implied probability judging by short-term rate futures. Markets can best express relative BoC hawkishness with long CADJPY or short EURCAD bets.


USCAD. Source: ThinkMarkets