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Trader fatigue sets in but the the Sun always shines on TV

The stabilisation in equities on Friday helped calm FX carry as headlines around Brexit, and the Italian budget were more positive heading into the weekend. Newswires have been very friendly into the weekend. Bloomberg reported that Italy’s government might cut its 2019 deficit target to 2.15%. Remember, Italy PM Conte has said the government would meet on Saturday to discuss budget and tax issues. This meeting comes ahead of its Monday (at noon) deadline to respond to the EU Commission’s letter published Thursday.

The SHCOMP, which everyone should be watching, did post a bullish outside day, mind you at the low end of the trend. But with USDCNY (not CNH) failing to clear the 6.94 hurdles this week, a semblance of normality has returned to China equity markets but none the less a very unconvincing close.

Despite misguided rumours suggesting May’s demise  Cable got chuffy on this Bloomberg headline: *U.K. IS SAID TO DROP BREXIT DEMAND ON IRISH BORDER TO EASE DEAL. In a nutshell, the new backstop being proposed would act as an en-ended insurance policy in case the overarching future trade deal between the UK and the EU does not avert the need for customs checks at the Irish border (rather than a full trade agreement as previously stipulated).
Why on earth this backstop has caused such an uproar of late is a bit perplexing since its mainly just an insurance policy, so the ” long GBP short STIRT futures ” Dream Trade ” remains alive and kicking. But Theresa May is said to drop one of her key Brexit proposal elements to make way for a deal. She and her team have now accepted EU’s point that the border discussion must be open-ended in search for an “enduring solution”. The proposal is for the UK to stay tied to EU in the form of a so-called backstop.

In EM FX, there is more uncertainty about what central bankers might do. We have monetary policy decision due for IDR, TRY, RUB, COP. All and any  CB decision could be impactful to broader risk sentiment.

Oil closed the week below WTI 70 which is a significant fail for bullish sentiment. Prompting CITI Bank to come out with the best headline I’ve heard in years, we’ve had the churn, time for the burn? And even this eternal Oil bull is getting concerned.

Oddly enough, the fact US equities ended flat on Friday keeps the few optimists in the market alive an kicking.

Trump and Xi agreed on a tentative meeting on the G-20 summit next month, but if USD CNH doesn’t clear 6.95 next week as fundamental pressures from US-China trade tensions dictates it should, this would be a significant surprise.

EURUSD is back above 1.1500, reflecting softening in alarm over equities & Italy. But a trade I love beside long GBP is long EUR, even more so after Moody’s finally cut Italy’s ratings to Baa3 as the USD will likely struggle into the US midterm elections, take some pause for the cause.

 

CAD didn’t get enamoured by US short covering into the weekend because data has left investor nervous into next week’s BoC meeting,

 

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