E Markets: Curves

“Nothing ever straight grows out of the crooked timber of humanity” – Isaiah Berlin  

The exponential gains in stocks have stalled, even as the USD continues a linear reversal and oil continues to rocket higher into the OPEC meeting Thursday. The curve and slope of risk continues to make for a very unpleasant ride for investors with hairpin turns, roller coaster inclines of worry, and questionable drivers.   

The inversion of the US rate curve throws many into a negative growth spin. Headlines overnight didn’t help anyone forget that they are in car without a seat belt – starting with Trump naming USTR Lighthizer as the lead negotiator for a China trade deal over the next 3 months.NATO meets today to talk about Russia and the Ukraine. The UK can reverse its Brexit decision unilaterally according to the ECJ opinion– adding to the view that December 11th could be the end of UK May government but also another way out of the Brexit mess with another referendum. The French PM confirms the government is suspending fuel-tax hikes but the yellow-vest protestors balk at talks. These headlines matter but the focus is on the fragile truce of trade and growth still with the USD reflecting the doubts about US divergence being central. The EUR is breaking out of its recent downdraft with 1.15 next while the CNY grabs all the headlines as its fixed stronger and runs nearly 1% stronger – watching 6.75 and 6.50 next. For most, CNY represents a measure of China growth and Xi success at home, for others it’s a risk barometer for all of Asia as it sets the export/growth tones that drive 2019 investment plans. The break of the USD uptrend here means something more than today’s curves. 

Question for the DayWhat are the new worries? Markets gave up on a Goldilocks view of the world overnight, blamed on rethinking US/China trade truces, but also linked to doubts about inflation/growth dynamics into 2019.  

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