The volatility that had enveloped the markets seemed to quiet down overnight. The main news item was China setting the Yuan midpoint at 7.0039. This is the weakest setting of the official rate since April 21, 2008. This rate setting was lower than economists who were polled by Reuters predicted. They had expected to see a 7.0205 setting according to the news agency. China allows the currency to trade within a 2% range from each day’s midpoint. China has let the currency depreciate a bit as a way of countering the moves of President Trump and the tariffs he has put on Chinese goods. 

The USD/JPY remains the currency of choice for traders as the “safe haven” effect is now stronger than ever. The USD/JPY did bounce off overnight lows, but most saw that move as more profit taking than sentiment reversal. The NZD and AUD, which had been sold off after the Reserve Bank of New Zealand lowered rates on Wednesday, rebounded a bit but still look like they will eventually move lower. Market analysts are looking at the possibility of further US rate cuts as well as possible easing by the European Central Bank. The continued trade war has brought more concerns about a possible recession in the US and interest rate futures.

Brexit is back in the news today. As the October 31st deadline approaches, there is still no deal between Great Britain and the EU. The latest poll conducted by Reuters shows a 35% chance of a no-deal Brexit. That number increased from 30% in July. This has put pressure on the GBP as currency traders now expect a significant move in the GBP on the downside that we could see the currency trade between 1.1700 and 1.2000 in the coming months. 

Dow futures were higher overnight as the market is reacting to some better than expected trade news from China. The US equity markets are expected to open around 70 points higher later this morning. After falling over 200 points during trade yesterday, the Dow ended with little change. The earlier fall was due to a dramatic move lower in Treasury yields. During overnight trading the US 10-year note was at 1.7240%, while the 30-year bond traded at 2.2502%. 

In a tweet, President Trump stated that the Federal Reserve, not China, is the problem. He also stated the Federal Reserve is too proud to admit they “acted too fast and tightened too much” and even called them “incompetent”. There was no response from the Federal Reserve. 

It could be a quiet day as the markets continue to consolidate. Movement in the Treasury markets may spark moves in the equity markets.