Morning Commentary: Market Psychology – Never Predictable

Foreign Exchange - Morning Commentary

Market Psychology – Never Predictable

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Alan Rose
Alan Rose
Foreign Exchange Head Trader
It was not more than a few weeks ago that trade frictions, sanctions, tariffs, etc. had caused markets to go into convulsions. The U.S. dollar strengthened sharply, emerging markets cratered, G7 interest rates dropped on concerns about contagion, and global equities weakened. Today, markets are in a whole new ball game. While well telegraphed by the White House, the imposition of more White House tariffs (10% for now) on Chinese exports and China retaliating, has barely caused a ripple.
Chinese and Asian equities reacted surprisingly well to the news with the Shanghai composite index up by 1.82%. G7 interest rates are also higher, and emerging market currencies are mixed with many slightly stronger and just a few weaker (India and Turkey). The potential contagion and ripple effect from heightened U.S.-China trade tensions impacting a global slowdown is almost non-existent today compared to just a few weeks ago. Commodity prices are higher today and commodity linked currencies are leading the way today with the U.S. dollar slightly weaker.
As we all have witnessed, market psychology can again turn the other way. Since a few weeks ago, there have been more story lines that emerging markets and currencies have gone too far south and are overdone. In addition, there are more commentaries that the markets are preparing for a long and drawn out trade battle between the U.S. and China with no quick resolution. There is much at stake for both countries politically and economically. The U.S. November elections will be an early indication as to how voters view the Trump Presidency, the economy and the notion that “trade wars are good and easy to win.”
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