President Trump confirmed recent reports when he announced that the final list of Chinese imports targeted for new tariffs will be revealed after markets close and go into effect shortly thereafter.
Key Quotes:
“US equities sold off into the close (SPX: -0.6%) while the TSX (+0.4%) stayed in positive territory. “
“Meanwhile, rates were largely unchanged in both countries apart from modest gains (~1bp) in the belly.”
“The focus on trade tensions has seen the USD trading on its back foot to start the week. SEK (+1.6%) rallied sharply on Riksbank minutes (see below) while GBP (+0.7%) firmed to its strongest level since July. CAD (unch) underperformed on the crosses amid a recent hiatus in NAFTA talks.”
What we’re watching in markets
“We continue to look for EURNOK to extend lower ahead of this week’s Norges Bank decision. Positioning risks are building, however, suggesting a neutral risk allocation in NOK may be more prudent for the event itself.
With the Q3 USD rebound looking exhausted, we are now rotating to a buy-on-dips footing in EURUSD. Ahead of this, we see value in positioning via options as the global risk backdrop remains particularly uncertain. Many of these risks look increasingly priced, however, particularly those that have supported USD longs in recent months.
EU/UK rates continue to trade with a weak bias following last week’s central bank meetings. We continue to recommend USD vs EUR/UK compression trades. In particular, we favour receiving 2y2y USD swap vs paying GBP 2y2y swap.”
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