Rates Fall Across the Curve Despite Phase-One Deal

 

Rates seesaw on trade developments, falling across the curve despite phase one trade agreement with China. Markets reacted poorly on Friday to the lack of detail surrounding tariff rollbacks, the 10-year yield falling 7 basis points to 1.82% after jumping as much as 15 basis points the prior day. All that said, the long awaited trade agreement coupled with the Conservative party’s victory in UK’s general election removes two of the major risks weighing on markets as we approach year end. That bullish sentiment was perpetuated by Fed official Richard Clarida who remarked that “the US consumer has never been in better shape in my professional career.” Another key risk also appeared to ease on Friday, Chinese industrial production data exceeding expectations- suggesting fears around a Chinese recession may have been overblown. Rates are modestly higher this morning, US equity futures point to a higher open for risk assets as well.

 

 

China threatens to retaliate against Germany if the country choses to ban Huawei Technologies. Though Huawei rejects allegations of its potential for espionage and sabotage, Germany is the second country to consider banning the 5G supplier. China is Germany’s largest trading partner, so this decision could have a major impact on the export-driven German economy. The bill is currently under review by Merkel’s Chancellery and the Economy Ministry, who have both historically elected to avoid trade tensions by limiting restrictions on Chinese companies. The debate echoes the US’s Huawei ban earlier this year, which coupled with the trial of Huawei’s CFO helped dramatically escalate the trade conflict between the US and China.

 

 

Day ahead. PMI data will be released today at 9:45 ET (forecasts currently call for modest expansion in both services and manufacturing activity). Later, the Treasury will auction $78 billion of T-bills at 11:30 a.m. The Bank of England will release its latest financial stability report at 12:00 p.m. Minneapolis Fed President Neel Kashkari will speak later this evening.