Morning Commentary: A Little Something for Everyone

Foreign Exchange - Morning Commentary

A Little Something for Everyone

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Alan Rose
Alan Rose
Foreign Exchange Head Trader
While there is really not much movement in the markets from overnight, there are a few noteworthy exceptions as we approach the Fed interest rate decision day tomorrow and month end factors. European currencies remain better bid against Asian currencies as the market is still digesting the short, medium and long term impact of a prolonged U.S –China trade war. Oil prices continue to move higher for the short term pushing back into territory not seen since 2014.
One of the most important triggers for the market is the steady but persistent rise in U.S. interest rates. U.S. short, medium and long term interest rates have been rising steadily almost exactly from one month ago. So far, the rise in rates has not derailed the global equity markets nor has it caused the USD to take flight. This morning, U.S. 10-year yields are near 3.10%; the last time we saw these levels was in May and before that in 2014.
So far, markets seem to be absorbing the twin shocks of rising U.S. interest rates and a long drawn out trade war between the U.S. and China. Markets appear to have priced in enough negative news on both of those fronts for now. Markets are fully expecting the Fed to raise interest rates for the eighth time tomorrow; the key for the markets will be the forward guidance provided by the Fed regarding expected future growth and inflation. Until then, expect more consolidation as traders and investors await the next market moving headline.
  • Italian stocks and bonds are outperforming this morning on the back of reports that a compromise budget deficit of near 1.9% of GDP has been reached. If the news reports are true, this would bring a sigh of relief for the markets as the market had been concerned that a larger deficit number was being targeted by the new coalition govenment.
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