Five Things You Need to Know to Start Your Day

Written by
Lorcan Roche Kelly
Written by

Lorcan Roche Kelly

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(Bloomberg) --

Confusion reigns over what exactly was agreed in Argentina, the Treasury yield curve gets its first inversion in a decade, and the U.K. may be allowed to unilaterally end Brexit. Here are some of the things people in markets are talking about today.

Well.., umm...

Treasury Secretary Steven Mnuchin and Trump's top economic adviser, Larry Kudlow, both tried to dial back expectations and add qualifiers yesterday to President Donald Trump's declarations over elements of the deal reached with China at the G-20. The warmest Kudlow could muster was to call them “commitments” that both sides would “presumably implement”. There was also confusion over when the 90-day tariff truce would begin, with Kudlow saying Jan. 1, which the White House later corrected to Dec. 1. The Chinese response has been most notable due to its absence, with bureaucrats from various government offices in Beijing awaiting the return of President Xi Jinping to the country before commenting or taking any action.

Inversion!

The spread between three- and five-year Treasury yields dropped below zero yesterday, with the two-year yield also trading higher than the five-year this morning. Markets have traditionally seen an inversion of the two- to 10-year spread as a harbinger of doom – a recession – and while we are not there yet, the 10-year yield dropped below its 200-day moving average for the first time this year. While the moves come as investors reassess the outlook on how quickly the Federal Reserve will tighten, some analysts say they are wrong to moderate more-hawkish assessments.

Not Hotel California

An advisory opinion from the European Union's top court says that the U.K. could, if it wanted to, unilaterally withdraw from the Brexit process. Counter-intuitively, the fact that it seems Brexit can be halted should prove a boost for U.K. Prime Minister Theresa May as she tries to get her deal through parliament. Now her threat to hard-line Brexiteers in her own party that voting down the deal may lead to no Brexit at all carries much more weight. The pound rose after the opinion was published.

Markets slip

Overnight, the MSCI Asia Pacific Index dropped 0.6 percent while Japan's Topix index closed 2.4 percent lower as the yen rallied against the dollar and electronics manufacturers remained under pressure. In Europe, the Stoxx 600 Index was 0.3 percent lower at 5:50 a.m. Eastern Time as investors pare some of yesterday's moves due to the confusion over what was actually agreed at the G-20. S&P futures pointed to a lower open, the 10-year Treasury yield was at 2.955 percent and gold was higher.

Coming up…

It is a light day data-wise in the U.S. today. Due to tomorrow's national day of mourning for President George H.W. Bush, scheduled releases for Wednesday have been pushed to Thursday, with Federal Reserve Chairman Jerome Powell's widely anticipated testimony to Congress postponed. U.S. markets will also close tomorrow.

What we've been reading

This is what's caught our eye over the last 24 hours.

Odd Lots: How to analyze currency markets and understand the future of the dollar.
Goldman sees another weak year for markets after a lousy 2018.
JPMorgan says cash is better than stocks for the first time in a decade.
Rally or time out? Wall Street asks what's next for stocks.
Apple to reassign marketing staff to boost iPhone sales.
Wall Street rule for #MeToo era: Avoid women at all costs.
Climate change “greatest threat” UN told.