US equities were weaker overnight with the S&P down 0.2% following losses elsewhere.

Although jobless claims fell, no updates overnight on US stimulus talks continued to cloud the view triggering a modest level of ‘risk-off’ investor behaviour in most markets.

US Congress’ dithering over the next economic stimulus package measures met with a stalemate and is wearing on investors’ patience, and utterly unpalatable from an ideal perspective.

While another gnarly increase in coronavirus cases nationwide took a toll on investor confidence.

Let us hope this turns around, given it’s Friday, and it really should not feel like Monday. But with trade talks set to roll, let’s hope the Monday blues doesn’t’ come three days early.

Asia shares look set for a muffled start as the US Congress’ political grandstanding delay is posing some risk for the global recovery. Still, there is no chance of this deal not going through for all the politically tarnishing Frugal Freddy reasons that have been alluded too.

It is a matter of whether it is $1.5 or 2 trillion where bigger would be better. And one thing investors feel confident about is that they like stocks higher, so look for dips to be bought on the expectation of the deal eventually going through.

US 10-Y bond yields rose, up 5bps to 0.72%. A $26bn 30-year treasury auction was met with weak demand attracting a bid-to-cover ratio of just 2.14, lowest since July 2019, which set the tone for the dreary mood music for the rest of the day.

When no one wants to buy your bonds, it is not an excellent sign for the economic outlook or the US dollar.

Indeed, it suggests investors require a more significant return to cover the US dollar risk premium as the greenback shows signs of losing its ‘exorbitant privilege.” But it is also the bond market’s not such a subtle way of screaming for help while trying to force the Fed’s hand to step up.

Of course, a slightly weaker dollar in the broader scheme of things is not that big of a problem for global risk sentiment, provided the sell-off remains gradual and eventually capped.

Forex Markets: US dollar

The ambiguity of what driving the US dollar risk is a bit challenging at times. It is jumping between risk-on risk-off, yields, and then the growth differential trade kicks in, so you need to be very nimble in the currency market these days.

Nonetheless, differentiation is happening below the surface, with JPY (recent UST bear steepening) and NZD (dovish RBNZ) offers the most transparent opportunity.

AUD-NZD is once again threatening to post a new YTD high with policy divergence, a key theme for the cross. The Reserve Bank of New Zealand (RBNZ) surprised with a dovish expansion of its QE program and rhetoric underlining its dogged determination to keep bond yields low.

By contrast, the Reserve Bank of Australia (RBA) rhetoric has tended to suggest a holding pattern for the policy with interest rates at the effective lower bound.

International markets analysis and insights from Stephen Innes, Chief Global Market Strategist at AxiCorp