Since the time of writing about the 0Yr-2Yr spread’s omen, the sell-off of short-term and buying long-term Treasuries seems to have gained momentum. The spread between 10-year and 2-year papers decreased from 0.15% to 0.11%. It looks like the markets could be seriously concerned about the fallacy of the Fed’s plans.
After an initial positive reaction to the meeting in Argentina, oil prices erased part of their growth on Wednesday. The market was discouraged by data on commercial inventories in the United States, which indicated strong production pace despite the significant price correction. In addition, the economic difficulties in the second largest economy in the world, China, raised concerns about the prospects for global demand for oil.
The pressure on prices on Wednesday came from API data as US stocks rose by 5.4 million barrels, in the week ending November 30, to 448 million barrels. The current state of reserves and output pace of American oil companies can be attributed to signs of a looming market glut.
EIA data will be published later today which are likely to confirm the concerns, as the infrastructure for oil transportation is being successfully upgraded, increasing its carrying capacity. For a long time, the American oil production was constrained only by the “diameter” of the pipeline.
The “waterfall of sales” in the US stock market led to a fall in major indexes of more than 3% on Tuesday. The behavior of the markets contrasts sharply with the assumption that the Trump deal with Xi will maintain global growth prospects. Sales reflect the low expectations of markets for the primary effective arrangements between the US and China, and the faint hope that a three-month delay will allow countries to work out a comprehensive agreement. At the same time, the yield on the bond market has declined, indicating a simultaneous change in investor preferences in favor of fixed returns due to disappointment / despondency in the prospects for stock returns.
Trump threatened to introduce substantial tariffs for Chinese goods on Tuesday if the administration could not fulfill the preliminary agreement with Beijing.
In turn, Chinese officials were quick to assure that preliminary measures to ease trade tensions would be implemented soon, for example, purchases of agricultural goods from the United States would be increased.
According to some reports, the Chinese oil giant Unipec may resume purchases of US oil until March, as agreements at the summit in Argentina reduce the likelihood of imposing tariffs on energy imports.
Disturbing news came from the Australian economy which output in the third quarter grew by 2.8%, contrary to forecasts of 3.3%. AUDUSD fell by 0.68% reflecting market expectations regarding the RBA policy, which is likely to shift the timeframe of the rate increase to the end of 2019. The slowdown in Australia is likely due to economic problems in China, which is the main trading partner of the island nation.
The pound sterling fell to a minimum of the year after Theresa May lost the Brexit vote on Tuesday and threatened that if the government refuses to cooperate, Britain will withdraw from the EU either without a deal or a second referendum will be held, after which the exit can be canceled. A key parliamentary vote on the exit plan for the EU will be held December 13-14, and May will most likely not get the necessary number of votes. The goal for GBPUSD is 1.25, as along with the growth of pessimism about global growth, the pound has few prospects for strengthening.
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