With US traders starting the new week amid concerns of more bad news on the trade front – at least those who were not out for Rosh Hashanah – and further profit taking in the FANG complex, the final result was probably better than most had expected.

The day started off with the usual trade war jitters, with Chinese stocks sliding as the Shanghai Composite slumped 1.2%, deeper into bear market territory, and approaching the cycle lows hit in mid-August.

Predictably, emerging markets followed suit, sliding overnight then limping barely higher only to reverse most of their gains.

The biggest EM losers were the usual suspects of the past month, including the Indian rupee – which dropped to a new all time low – the Argentine and Chilean peso, the Brazilian real and the Russian ruble.

Yet while Asia – with the exception of Japan which bounced after an unexpectedly strong GDP revision – set a bearish tone, everything reversed one Europe opened…

… pushed higher by Italy, after Finance Minister Giovanni Tria made some more soothing comments about the country’s budget deficit plans: “It makes no sense to seek two or three billion euros of extra deficit if we then have to pay three or four billion more due to higher yields on government bonds”, Tria said during the Ambrosetti Forum in Cernobbio, Italy on Sunday. He said that all cabinet members “are fully aware of that.”

He echoed last week’s comments from key cabinet members, including Deputy Premiers Luigi Di Maio of the Five Star Movement and Matteo Salvini of the League, who also reassured investors that the 2019 budget won’t breach EU rules, resulting in the biggest weekly gain in almost three months for Italian bonds, which on Monday continued their rally with 10-year BTP yields narrowing about 10 basis points, while Italian 2Y yields tumbled.

Yet Europe’s exuberance did not exactly translate to the US, where FANGs hugged the flatline all day, unable to lead the market higher as a result of another day in which AAPL dipped by just over 1%.

Meanwhile, the S&P – which decoupled from the VIX late last month – resumed its upward trajectory, rising by a modest 0.3%.

It was a different story in US Treasurys where the long-end outperformed with the 30Y yield sliding 2bps to 3.09%…

… flattening the 2s30s curve by 3bps…

… but it was the 5s30s that once again saw the biggest bear flattening as concerns about future rate hikes kept the short-end elevated while investors dipped their toe into the long end.

Meanwhile, even as risk rebounded in Europe and the US, China refused to join the party, and the offshore yuan dropped for a third day, weakening past the 6.87 level as investors remained cautious amid threats of U.S. tariffs on a wider range of Chinese products. In fact, the offshore yuan reversed gains seen in New York morning, falling to lowest point since Aug. 23 on a closing basis despite another PBOC fixing that supported the currency.

In FX, the big move was the dive in the dollar which dropped as the pound rose sharply, boosted by EU chief negotiator Michel Barnier’s comments that getting a Brexit deal done within six to eight weeks is “realistic”, while a rally in the euro helped keep the greenback under pressure, following the abovementioned optimistic comments out of Italy’s finance minister.

There were few notable moves elsewhere, with the exception of Tesla stock which surged higher after Friday’s plunge, on the back of several upgrades; these however were ignored by TSLA bonds which barely moved higher after Friday’s drop to a new all time low.

Finally, while Art Cashing would say today was “another waste of carfare and a clean shirt”, there was some good news for the bulls: at least the 4 day losing streak in the S&P to start September – only the third time one has been observed after 1987 and 2001 – is now over. What happens next is very much in the hands, or rather twitter feed, of one Donald Trump.



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