ANZ's analysts note that, for the global markets, the major shift of the past month has been the deterioration in the tone of the U.S.-China trade negotiations.

• “Since the last round of talks, when disagreements on the final text of the agreement arose, both sides have hardened their stance, and the likelihood of a resolution has diminished.
• Added to these concerns is the possibility that some of the recovery we saw in demand for semi-conductors was driven by Chinese companies front-loading purchases. This combination means that the hopes of recovery, which were underpinning market sentiment and liquidity, are looking fragile again.
• In particular, the recent rise in the liquidity index looks like it could be short-lived and the market will again find itself in a low growth and low liquidity context, where the momentum for both is once again negative. This is an environment where volatility is higher and where cyclical currencies underperform.
• The policy reaction function will, in our view, be too slow to come to the rescue (via a large scale shift in official liquidity) in the near term. The Chinese response remains targeted, while the US Fed will need to see a substantial and sustained deterioration in financial conditions before it acts, given the strength still evident in the labour market. Within this context, we remain bearish on cyclical currencies.
• While the outlook for the major currencies has remained largely unchanged, we have drastically cut our forecasts for risk sensitive, cyclical currencies.”