Morning Commentary: Are the Markets Uncoupling?

Foreign Exchange - Morning Commentary

Are the Markets Uncoupling?

Share this story:
Alan Rose
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. 
  • 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.
If we can help you with any Foreign Exchange needs, please email or call (800) 447‑4133.
Want to learn more about international finance, economics, and global events? Sign up for our other Foreign Exchange emails and videos!
Follow City National Bank on social media:
Facebook Twitter LinkedIn Google Plus YouTube
Investment and Insurance Products:
Are Not insured by the FDIC or any other federal government agency
Are Not deposits of or guaranteed by a Bank or any Bank Affiliate
May Lose Value
This report is for general information and education only and was compiled from data and sources believed to be reliable. City National Bank does not warrant that it is accurate or complete. Opinions expressed and estimates or projections given are those of the authors as of the date of the report with no obligation to update or notify of inaccuracy or change. This report is not a recommendation or an offer or solicitation to buy or sell any financial instrument discussed. It is not specific investment advice. Financial instruments discussed may not be suitable for the reader. Readers must make independent investment decisions based on their own investment objectives and financial situations. Prices and financial instruments discussed are subject to change without notice. Instruments denominated in a foreign currency are subject to exchange rate and other risks. The Bank (and its clients or associated persons) may engage in transactions inconsistent with this report and may buy from or sell to clients or others the financial instruments discussed on a principal basis. Past performance is not an indication of future results. This report may not be reproduced, distributed or further published by any person without the written consent of City National Bank. Please cite source when quoting.
Unsubscribe from this list  |  Update email preferences
This message has been sent to Please do not reply to this email. To ensure the delivery of future emails, please add to your email address book or safe sender list.
Copyright ©2018 City National Bank – All Rights Reserved.
350 South Grand Avenue, Los Angeles, CA 90071
City National Bank is a subsidiary of Royal Bank of Canada.
Equal Housing Lender


Popular posts from this blog