A daily summary and commentary of events and factors that affect the global markets, with a particular emphasis on the foreign exchange markets.
Are the Markets Uncoupling?
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Alan Rose Foreign Exchange Head Trader
It was just last week that U.S. and global equities were routed on concerns about a too rapid rise in U.S. interest rates. Equities plummeted on back-to-back sessions and U.S. interest rates corrected slightly lower off of the multi-year highs. Yesterday, U.S. equities had a banner day fueled by stronger than expected industrial production data and the U.S. JOLTS (job openings) report. Job openings totaled 7,136,000 for the first time ever but more importantly, the number of job openings exceeded the number of unemployed. This was all great economic data and equities reacted strongly gaining well over 2%. However, U.S. interest rates did not budge to the good news!
We had a brief discussion about that on the desk yesterday and found it oddly strange. In fact, our discussion included the U.S. dollar as also decoupling from moves in U.S. interest rates. Last year, the U.S. dollar weakened for most of the year despite Fed rate increases and much higher short and medium term interest rates. This year, U.S. interest rate differentials are at their widest levels against many key currencies in decades and yet the U.S. dollar is nowhere near its highs against many of those currencies.
It is hard to forecast the path of U.S. equites and the U.S. dollar when tried and true barometers no longer work as they have in the past. From where I sit, it would seem that the path of U.S. interest rates is still higher as the economy remains strong, the Fed still remains on a path to normalize interest rates, and the Treasury will need to raise billions of dollars through Treasury auctions to finance the deficit and debts the U.S. government is incurring. They say forecasting is more art than science and that axiom has certainly proven to be true now and most likely in the future.
HERE ARE THE KEY NEWS STORIES FROM OVERNIGHT:
The British pound is the weakest of the major currencies today on the back of weaker than expected September CPI data. CPI rose by only 0.1% against expectations of a 0.3% gain and YoY inflation dropped from 2.7% to 2.4%; core CPI also fell below 2.0% to 1.9% and U.K. interest rates fell on the news sending the pound down.
U.S. Housing Starts for September came in weaker than forecast at 1,201,000 with a downward revision to August. The impact of Hurricane Florence might have impacted part of the data. Housing permits also fell below expectations and multifamily home starts fell by 15.2% while single-family starts fell by 0.9%. U.S. interest rates are unchanged and have continued to consolidate over the past five sessions.
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