The S&P500 fell Tuesdaydown 0.8%, and U.S. 10-year Treasury yields fell 5bps to 1.55%

The market seems to have paid little attention to the U.S. president indicating he would explore" various tax reductions" to help stimulate growth, for example. Instead, investors succumbed to apprehension in rates and trade talks.
 
In yet another trade war-related gut-check moment, equity futures collapsed when U.S. Secretary of State Mike Pompeo told CNBC that Huawei Technologies Co. and other Chinese companies a national security threat. This news set a very capricious tone in the markets as only 24 hours earlier the U.S. extension of exemptions from a ban on doing business with Huawei was being interpreted as another olive branch ahead of the re-start of US-China trade talks next month
 
Market participants are fully pricing a rate cut at the September meeting and a total of 4 cuts in the next 12 months. However, comments from Federal Reserve Bank of Boston President Eric Rosengren who walked back some of the markets immediate dovish expectations continues to highlight how hard it would be to generate a consensus on the board for the more aggressive easing option.  Indeed, even James Bullard, arguably the most dovish Fed member, is echoing the case for moderation, suggesting that the markets dovish near-term ambitions could be misplaced
 
An indecisive FOMC is terrible at the best of times but with investors now questioning if the Fed will be able to prevent a slow down in the U.S. economy, now is the time for a unified stance and not to come off sounding like a bunch of malcontents.
 
Having a plurality of views on the board is excellent but quibbling and diverging views at critical junctures ultimately erode the usefulness of forwarding guidance and serves to offer up only confusions. If reports that Fed Chair Powell ordered the "Fed speak" under his purview to cease he will likely find support from the market in several pockets.
  
There is still a lot of nervousness among investors as the scary state of fixed income markets drills that view home, especially given that equity markets haven't exactly rolled over. But when you consider the ongoing uncertainty engulfing the global economy, it's not difficult to see why.

I remain convinced that the only thing that can bring a halt to the  fixed income rally would be a fiscal stimulus approach and in its absence, investors will continue to take outright duration, or curve plays given the shaky economic state of affairs trade war have led us to
 
So, at least for today, our trade war headline-inspired relief rally appears to have run its course as I suspect there is still a lot of nervousness among US investors as the global economic realities are just too hard to ignore
 
Oil markets
 
In yet another volatile session oil markets spent most of the day scratching back losses ahead of the critical API inventory report after the markets wallowed in the muck when U.S. Secretary of State Mike Pompeo told CNBC that Huawei Technologies Co. and other Chinese companies pose a national security threat to the U.S.
 
However, oil traders took some solace after The American Petroleum Institute reported 3.45 million-barrel drawdown of crude and mercifully reversing the bearish streak of inventory builds for the first time in three weeks.
 
US inventory data this week will again be a more critical catalyst than usual given that we are nearing the end of peak US driving season. But today's report is not providing the much need bullish fillip for two reasons; the draw was priced into the calculus in no small degree after last weeks significant product decline. And the market wants to wait for the more definitive signal from the EIA data for absolute convincing the streak on crude inventory builds will not extend into the third week.
 
So, in the meantime, the trade-related tug of war in the Oil market will probably extend until we get some semblance of clarity from the next round of US-China trade discussion.
 
Gold markets

 
Gold markets rallied back above $ 1500 overnight supported by Trade uncertainty in the wake of U.S. Secretary of State Mike Pompeo who told CNBC that Huawei Technologies Co. and other Chinese companies pose national security threats to the U.S which promptly sent US equity market tumbling.
 
But haven demand remains a bit muted this week due to US rates uncertainty after the run of robust US economic data and what’s expected to be a Jackson Hole discussion that could focus more on the melding of Fiscal and Monetary Policy stimulus.
 
The increasing market chatter about Fiscal stimulus is widely thought to be one of the only solutions that can stabilise bond yields over the near terms which are having a dampening impact on Gold demand this week ass it runs counter to the lower for longer interest rates appeal Gold markets have been relishing.
 
But it not so evident given how dire the global economic outlook is if that will have a lasting impact in US yields as the prospect of trade war continuing in some form or another for years suggesting investors will continue to pile into duration.
 
The Jackson Hole effect is dampening currency volatility
 
The Euro

The EUR is steady in the wake of yesterday's soft final July inflation reading. Although low underlying inflation and negative growth skews are providing further support for ECB easing.
 
The Aussie dollar

The AUD trades slightly firmer following the release of the RBA minutes Although there was not surprised in the minutes overextended short AUD best pared because of the RBA's wait and see approach. But the RBA watchers were quick to remind that RBA's meeting minutes have directly linked the Bank's policy rate forward guidance to the labour market. The August minutes didn't. Instead, the RBA now says it is looking for an "accumulation of additional evidence" to justify further cuts possibly hinting at another rate cut in September?
 
The Malaysian Ringgit
 
Despite the convincing beat in Q2 GDP Global investors continue to shy away from Asia markets due to trade war escalation fear and the potential negative currency knock-on effect from a weaker Yuan
 
Investors prefer to buy local assets when the Ringgit is strengthening as they don’t have to pay yield away to hedge currency risk
 
We will be stuck in this trade war-induced malaise until the more definitive tone is set after the US-China trade talks slated to resume soon. But at this point, hoping for the best but positioning for the worst could keep the Ringgit trading on a defensive posture.

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