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· The U.S. dollar strengthened on Monday morning, recovering from overnight losses after the United States and China sought to ease trade war tensions.


President Donald Trump, on the sidelines of the G7 summit of world leaders in France, said Chinese officials had contacted U.S. trade counterparts overnight and offered to return to the negotiating table. Vice Premier Liu He, who has been leading the talks with Washington, said China was willing to resolve the trade dispute through “calm” negotiations.


In overnight trade prior to these remarks, China’s yuan had fallen to an 11-year low in the onshore market and a record low offshore and the U.S. dollar fell to a 2-1/2 year low against the Japanese yen.


The currency market had been reacting to Trump’s announcement on Friday of an additional 5% duty on $550 billion in targeted Chinese goods, hours after Beijing unveiled retaliatory tariffs on $75 billion worth of U.S. products, sending stocks into a tailspin and investors rushing for the safety of bond markets.


Trump on Monday sought to limit the fallout and smooth tensions, helping the yuan come off its lows. The dollar index recovered, last up 0.4% at 98.03.


In China’s onshore market, the yuan fell to 7.1540 per dollar, the lowest since February 2008.


In the offshore market, the yuan slid to as low as 7.1858 yuan, the weakest since international trading in the currency began in 2010, before recovering to 7.1635 yuan - down 0.43% on the day - after Trump’s upbeat comments.


In a sign that some calm had returned to markets, the Japanese yen - which investors regard as a safe-haven - fell 0.57% to 105.99, having earlier hit a 2-1/2-year high of 104.44.


· Treasury yields held steady Monday despite the rate on the benchmark 2-year note rising above that of the 10-year, triggering again a recession indicator that has dogged financial markets in recent weeks.

At around 1:13 p.m. ET, the yield on the benchmark 10-year Treasury note was trading at 1.533%, below the 2-year’s rate of 1.545%, inverting the U.S. Treasury curve further. Such an inversion of the 2-10 yields is viewed by fixed income traders as a recession prognosticator, but trying to forecast exactly when GDP growth contracts is harder to project.

· The reignited trade fight between the U.S. and China elevates the odds of a global recession and market pullback over the next year, according to some of Wall Street’s top economists and market strategists.

The global economy would fall into recession six to nine months after the U.S. and China enforce their new round of tariffs, wrote Morgan Stanley’s chief economist, Chetan Ahya.




Those concerns manifested in the most recent U.S. GDP report. Gross private domestic investment tumbled 5.5% in the second quarter, the worst since the fourth quarter of 2015 as spending on structures slumped 10.6%. The decline pulled a full percentage point from the final GDP number of 2.1%.


The souring global outlook is bad enough to warrant a portfolio shift, wrote Mark Haefele, global chief investment officer at UBS Wealth Management.


“With talks between the US and China dominating market moves over the near term, investors should brace for higher volatility. We believe it is prudent to take action to neutralize part of this event risk,” he wrote. “As a result, we are reducing risk in our portfolios by moving to an underweight in equities to lower our exposure to political uncertainty.”



· Johnson has 68 days to convince the EU to give him a new Brexit deal, with neither side so far willing to compromise on the most contentious issues. If he can’t get a deal, he says Britain will leave the bloc anyway.


That leaves Britain, with the world’s fifth largest economy, heading for a messy divorce with the EU that critics fear could lead to food shortages and major border disruption in the short term and undermine the country’s prosperity in the long term.


When asked by Reuters if he was prepared to take talks with the EU right up to Oct. 31, Johnson said: “Well I do think that the EU does tend to come to an agreement right at the end.”


· Oil prices edged lower on Monday on the outlook for increased supply of Iranian crude after France’s president lifted hopes for a deal between Washington and Tehran, but losses were limited by growing hopes that the United States and China could make a deal to end their trade war.

Brent crude fell 54 cents to $58.80 a barrel, after earlier hitting a session high of $60.17. U.S. West Texas Intermediate (WTI) crude futures fell 53 cents, or 1%, to settle at $53.64 a barrel, after reaching $55.26 a barrel.

Prices fell after French President Emmanuel Macron said preparations were underway for a meeting between Iranian President Hassan Rouhani and U.S. President Donald Trump in the coming weeks to find a solution to a nuclear standoff.



Reference: CNBC, Reuters