Ashraf's interview with BNN earlier today. Full interview.

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China's Commerce Ministry said it will have to take further measures to respond to US tariffs on Wednesday and that initially weighed on the dollar. But as USD/CNY hits hit fresh 4-week lows, it is sending all major currencies lower against the USD, including AUD despite a stellar Australian jobs report. A new JPY Premium trade will be issued for subscribers.

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GBP broke below $1.30 after an unexpected decline in UK retail sales. USD pushes higher after jobless claims fell by 8K to a fresh 48-year low, while the Philly Fed survey rose to 25.7 from 21.5 after a previous dip.

The trade war this year has confounded most analysts, it's the boogyman of markets. It seems to appear from time to time and sends a fright into the market only to disappear. Each time a few bulls are spooked out of the market while the rest seem to carry on in the belief that the boogyman doesn't really exist.

The problem here is that the trade war is real. The US revealed a new proposal for uranium tariffs Wednesday and China's Commerce Ministry said it will take further measures. The boogyman is real and analysts and economists continue to talk about it.

Does the market believe it? USD/JPY fell on Wednesday on the China headlines Wednesday before later rebounding for most of the day. If you've been following this story, that's a recurring theme. Every trade war scare headline-move has been erased so far. Sometimes it's quick, other times it's slow but a portion of the market is increasingly conditioned to buy every dip.

How does it end? Either the dip buyers continue to dominate and it ends with equities and USD/JPY continuing to climb; or the dip buying lulls the market into a false sense of security that's spectacularly shattered once the trade war hits some kind of tipping point.

What might that tipping point be? Most would point to the tariffs on $200 billion Chinese goods the US has under consideration. Until then, the dip-buying trade will slowly get more crowded.

The US yield curve fell to its flattest level since the crisis on Tuesday as Fed chair Powell dismissed the potentially recessionary signal. All currencies are down against the USD. GBP is the biggest loser on weaker than expected UK inflation, but with the headline CPI at 2.4% 00 well over the BoE target, the case for an Aug 2nd rate hike remains. The Premium DAX short was stopped out.

Not always recessionary but.

There is a raging debate inside the Fed about the implications of an inverted yield curve. Over the past half-century every inversion has triggered an interest rate cut by the Fed but not always a recession. On Tuesday, the difference between 10-year and 2-year yields fell to just 24 basis points. If the Fed hikes as anticipated, it will almost surely invert in the year ahead. Chapter 6 of Ashraf's book goes deeper in each of the yield curve inversions over the past 40 years. In it, Ashraf asserts that the inversion of 1998 did not lead to recession, but certainly predicted a series of Fed rate cuts in autumn of that year in light of the LTCM debacle. For traders, it is more important to be able predict rate cuts, or changes in the tightening cycle, than actual recessions.

So is it a signal? Powell doesn't think so. On Tuesday he weighed in to say that the only real signal from the yield curve is in regards to neutral rates.  Time will tell if that's true or not but in the short term, the takeaway is that an inverted yield curve, or the threat of it, won't pevent Powell from continuing to hike rates.

Like in quantum physics, since the market now knows Powell won't stop hiking because of an inverted curve, it makes a recession more likely.  That's because 1) it's a sign Powell will be more aggressive 2) Yields won't be restrained (as much) by the implied or real threat of the Fed slowing down because of inversion.

In the short run, Powell's comments helpe boost the US dollar, but in the longer-term, his stance may prove to be a risk to the US and global economy.

Insurance

The crux of the problem continues to be that developed-market inflation remains restrained due to globalization and automation. The Fed is hiking because it believes a tighter jobs market will inevitably lead to inflation but that may no longer be true. More importantly, the Fed intends to normalize interest rates as far as it want in order to secure sufficient firepower in the event of the next recession. i.e. Fed funds rates will be high enough to be reduced.