Risk Appetite Returns on Trump Auto Tariff Delay

Today’s main market move was driven by the Trump administration expected decision to delay auto tariffs by up to six months.  The deadline for a hard decision is Saturday on whether national security concerns warrant tariffs on autos.  The markets welcomed the news as stocks soared and safe-haven currencies gave up most of their earlier gains.

Despite today’s optimistic tone, the NY Fed’s favorite recession indicator is once again inverted as the gap between the three-month and 10-year yields widens.  The last inversion in March only lasted a week and the one prior was in 2007.  This inversion however may be more of a signal investor are applying a deflationary hedge (paying a premium to hold longer term debt) and not a pure signal for a recession.  Historically the 10-year and 3-month inversion has successfully identified a recession within 12 months, with the only false positive occurring during the 1990s when Long-Term Capital collapsed triggered a systemic financial crisis.

The US dollar/Japanese yen’s correlation to Treasury yields has held up nicely over the past month.   If we see the 10-year yield on Treasuries continue to drift lower, we could see the dollar-yen slide towards the post January flash crash lows of 107.50.

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Ed Moya

Ed Moya

Senior Market Analyst, The Americas at OANDA
With more than 20 years’ trading experience, Ed Moya is a senior market analyst with OANDA, producing up-to-the-minute intermarket analysis, coverage of geopolitical events, central bank policies and market reaction to corporate news. His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies. Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business and Sky TV. His views are trusted by the world’s most renowned global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Breitbart, The New York Times and The Wall Street Journal. Ed holds a BA in Economics from Rutgers University.
Ed Moya