- Mnuchin now says high-level US/Chinese talks are on for Oct 7 week
- Trump/Abe today expected to confirm final US/Japan trade agreement
- UK Parliament today will reconvene to torment PM Johnson after he is slapped down by UK Supreme Court
- U.S. political turmoil rises as Pelosi announces formal impeachment inquiry
- U.S. new home sales expected to edge higher after recent volatility
- 5-year T-note auction to yield near 1.53%Â
Mnuchin now says high-level US/Chinese talks are on for Oct 7 week — Treasury Secretary Mnuchin late Monday corrected himself and said that Chinese Vice Premier Liu will travel to Washington in the week of October 7 for high-level trade talks with himself and USTR Lighthizer. Mr. Mnuchin apparently misspoke earlier on Monday when he said the meetings would be next week. Next week is a very busy week in China with events surrounding the National Day celebration on Tuesday (Oct 1) of the 70th anniversary of the founding of the People’s Republic of China. The Chinese markets will be closed next Tuesday through Friday for the Golden Week holidays.
There was mixed news on Tuesday on the US/Chinese trade front. President Trump in his speech to the UN General Assembly delivered some hardline remarks on China by accusing China of currency manipulation, dumping, and IP theft. On the more positive side, China announced that it would provide tariff waivers to a handful of Chinese firms to buy up to 2-3 million metric tons of U.S. soybeans. That announcement might soften the way for the high level talks in the week of October 7, although the amount of the soybean purchases was minor relative to China’s purchase of 36 MMT of soybeans in the last full marketing year before tariffs hit.
Trump/Abe today expected to confirm final US/Japan trade agreement — President Trump and Prime Minister Abe today on the sidelines of the UN meeting in New York are expected to confirm a final US/Japan trade agreement. There are reports that the final draft of the agreement has not yet been approved and that Trump/Abe today will sign a document that simply states that the two nations have reached a final agreement.
There continues to be some intrigue around the question about whether Japan will receive any assurance from Mr. Trump that he will not impose tariffs on Japan’s autos. Japanese Foreign Minister Motegi, Japan’s point man on the trade talks, said late Monday that he will explain the Japanese auto tariff situation on Wednesday after the signing ceremony.
Japan has reportedly been trying to get the U.S. to agree that the trade agreement would be voided and that Japan would be released from its concessions if President Trump in the future went ahead with tariffs on Japanese autos. The only reason that Japan agreed to any trade concessions in the first place was to receive assurances from Mr. Trump that he would not slap tariffs on Japan’s autos.
UK Parliament today will reconvene to torment PM Johnson after he is slapped down by UK Supreme Court — The UK Parliament today will reconvene after the UK Supreme Court on Tuesday unanimously ruled that Prime Minister Johnson’s attempt to suspend Parliament through October 14 was “unlawful.” The ruling made a no-deal Brexit somewhat less likely since Mr. Johnson will presumably be less likely to try to use his Parliamentary suspension tactic a second time to force a no-deal Brexit on October 31.
Parliament now has about five weeks to try new maneuvers to stop a no-deal Brexit on the October 31 deadline. Parliament has already passed a law that requires Mr. Johnson to request an extension from the EU if there is no Brexit deal by October 19, just after the EU Summit on Oct 17-18. However, Mr. Johnson has already suggested he might ignore that law or that he might find some other way to prevent an extension request. The betting probability for a no-deal Brexit in 2019 remains low at 20% (oddschecker.com) since the consensus seems to be that Mr. Johnson will be forced into another extension.
U.S. political turmoil rises as Pelosi announces formal impeachment inquiry — The stock market on Tuesday was undercut by reports that House Speaker Pelosi late in the day would announce a formal House impeachment inquiry. Ms. Pelosi, in fact, made that announcement after the stock market closed.
The impeachment inquiry will contribute to the political uncertainty in Washington, making the inquiry negative for stocks, the dollar, and consumer-business confidence. An impeachment inquiry may also make a settlement of trade tensions less likely. However, the bigger picture is that there is an almost zero chance of the Republican-dominated Senate convicting Mr. Trump, which means that he will in all likelihood serve out his term and stand for reelection next November, thus changing little.
U.S. new home sales expected to edge higher after recent volatility — The consensus is for today’s Aug new home sales report to show a modest recovery of +3.6% to 658,000 after the extreme volatility seen in the previous several months. New home sales fell by a combined -13.5% in April-May, surged by +20.9% to a 12-year high June, and then plunged by -12.8% in July. Existing home sales in Aug rose by +1.2%.
5-year T-note auction to yield near 1.53% — The Treasury today will sell $41 billion of 5-year T-notes and $18 billion of 2-year floating-rate notes. The Treasury will then conclude this week’s $131 billion T-note package by selling $32 billion of 7-year T-notes on Thursday. The benchmark 5-year T-note yield on Tuesday closed at 1.53%, which is 22 bp above the early-Sep 2-3/4 year low of 1.31%.
The 12-auction averages for the 5-year are as follows: 2.36 bid cover ratio, $36 million in non-competitive bids from mainly retail investors, 3.9 bp tail to the median yield, 12.9 bp tail to the low yield, 58% taken at the high yield, and 58.0% taken by indirect bidders, a proxy for foreign investors and central banks (below the median of 59.6% for all recent coupons).
