It’s taken a while, but markets looked to have stabilized a little yesterday and Asia has been on the buyback overnight, with markets clawing back between half and one percent. The ‘good’ news that lifted China is that they’re looking at policies and measures to offset the trade war and stabilize foreign trade – Much to Trump’s envy, the Chinese central bank does what it’s told by politicians – so we could see some easier policies or lending to soothe the pain points and even more infrastructure projects are probably likely.

With less room to maneuver than the Chinese, it will be interesting to see if Trump’s administration is willing to hold out. Goldman Sachs don’t see any chance of a deal between now and the 2020 presidential election. Additionally, there’s a report that says the tariffs have cost the US consumer $28bn since they came into effect last year and a whopping $6bn in June alone – the steepening of the curve is likely as goods in the supply chain work their way through to consumers and new ‘tariff inclusive’ pricing makes its way to the shelves.

The US bond market is warning of a recession as the ‘yield curve inversion’ steepens. This is where long dated bonds yield less than short dated ones. Yesterday we saw 10 year debt cost nearly half a percent less than 3 month debt, which in a world of ultra-low rates is a massive difference. Investors now think that, ln lieu of any action from the president with China, it’s down to the Fed to cut rates to get a recession off the agenda – with a 40% chance of a half percent rate cut from the Fed happening next month.

The Telegraph has an interesting story on trade wars and how they could mean a no-deal Brexit is more damaging for the EU. They say that Europe need to tread carefully with no-deal, as the likelihood of US tariffs and a generally bleaker global trade picture could hit them hard whilst at the same time losing a key trading partner (not that we’d stop trading with them, just that it would cost us more!). The article argues that their monetary defenses probably aren’t strong enough to cope with that ‘perfect storm’ of trade disruption.

There’s not much more out of Europe, as most of the continent is on summer holidays. In Italy, Matteo Salvini is still talking tough on the coalition and his desire to either get them to fall into line or call a new election. He’s been backed for months by his advisors to call a snap election whilst his popularity has been so high, but he has persisted with the coalition. Now he wants some changes in the cabinet, most notably the finance and transport minister gone, or he’ll set the wheels in motion with the president to go to the polls.

Oil is the other talking point in markets, with a drop yesterday that took it back to 7 month lows. The 5% drop in price was related to fears of a supply glut in a slowing economy, but this then turned around as investors thought that such a fall would lead to OPEC making production cuts in order to get the price back up. The market this morning has already bought back half the losses it made yesterday, but is still south of $55 per barrel and well off the calendar year highs of $66. We’d imagine $50 is the intervention level.

Today’s calendar is pretty light, but as we’ve seen it doesn’t take data to move markets in these summer sessions!

Have a great day.