Markets reverse Tuesday's moves; US yield curve inverts

Summary:

• Indices hand back Tuesday’s gains - and some

• Precious metals rise; Where next for Gold and Silver?

• UK inflation beats forecasts; GBPUSD remains near $1.20

• Crypto newsletter: China about to issue sovereign cryptocurrency

The joyous reaction in the markets to the news that the US would delay increasing tariffs on some Chinese consumer products appears to have been short-lived with US stock benchmarks sharply lower and the S&P500 back below the level it traded when the news broke. The timing of the news seemed odd and the decision appears to have been made after giving a sizable consideration to US consumers in an attempt to mitigate the adverse impact that the tariffs would have caused. In reality it seems more like a sign of weakness from the US and China will surely now be even further emboldened to drive a harder bargain going forwards.

US stock futures are actually lagging several other markets in reversing the initial moves with the German Dax already back below where it traded before the news dropped. Looking at other asset classes can also provide some insight for indices traders with the TNOTE and USDJPY also both showing reversals. The TNOTE in particular is worth further mention as the yield on the US 10-year has moved below that of the US 2-year - known as a yield curve inversion. This part of the curve last inverted in December 2005 and is widely recognised as a harbinger of economic recessions. However, it is worth pointing out that there’s often a lag between this signal and a peak in the US stock market, as can be seen from looking at the last 10 occurrences. Of the last 10 yield inversions (2-10s) going back over 60 years, US stocks topped out within 3 months on 6 occasions but on the other 4 it took 11-22 months to peak.

Gold prices tumbled by $50/oz after the decision of the US administration to delay some tariffs on the Chinese imports. Is that the end of the rally that has been so impressive? What about silver prices that soared some 20% between the end of May and 13 August? We take a look at those 2 hot markets in this analysis.

Price pressures in the UK rose faster than expected in July with the CPI Y/Y coming in at 2.1% against a consensus forecast of 1.9%. The core reading also ticked higher by 10 basis points to 1.9% against an expectation for no change. With the Bank of England recently stating that they were to become more data dependant this latest release could well be seen as supporting a hike with the headline reading now back above the 2% threshold for only the second time this year. Having said that, despite Governor Carney’s insistence that the Bank’s next move could be either higher or lower the consensus opinion remains very much that they won’t move before the October 31st Brexit deadline, and the most likely move after that would be to cut rates. As such this data will unlikely provide any lasting upside in the pound and the currency continues to languish around the recent lows just above the $1.20 handle.  

Our latest Crypto newsletter focuses on China and the possibility that the central bank is reportedly close to issuing its own cryptocurrency. You can read more here.