August 8, 2019
The yuan continues to be the signal for global markets, and for the past two days China has held it steady.
With that, we're getting some recovery in yields and stocks.
As you can see in the chart below, stocks have fully recovered the losses that started Sunday night, triggered by the devaluation of the yuan through 7.0 (yuan per dollar).
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While stocks have recovered those losses, the interest rate market has not fully recovered the losses. The 10-year yield is the key barometer of global financial market sentiment right now (and sentiment on prospects of a trade deal). And it's flashing red (negative).
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My view: We're at the stage where a full recovery in stocks, back to new record highs, isn't happening until a trade deal is done — even if the prospects for more Fed rate cuts are building, and even if the economic data comes in solid.
With that in mind, we run into a big technical area of resistance for stocks today (the 61.8% retracement of the recent correction). |
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But as we've discussed in recent days, I suspect Trump thinks he can get China back to the table this month (rather than next), by escalating the threats. His (currency manipulator) claim to the WTO does indeed increase his leverage. With that, I think the market is well under-estimating the chances that a deal could come in the coming weeks.
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