Morning Commentary: “Reason to Believe”

A daily summary and commentary of events and factors that affect the global markets, with a particular emphasis on the foreign exchange markets.

“Reason to Believe” Share this story: Alan Rose Foreign Exchange Head Trader

Markets are searching for a reason to believe that the equity market rout this week is just another correction in a continuing long term bull cycle. There have been numerous other short term stampedes out of equities going back to 2009 that were proven to be only buying opportunities for those that had a medium to longer term vision.  For today, it appears that some stability is at hand as both Asian and European equity markets are all in green, supported by some good fundamental news, and U.S. equity markets are opening higher.   Overnight, China posted its September trade data which showed another large surplus above expectations. But the numbers within the numbers showed that exports for September came in much stronger than expected at 14.5% against consensus estimates of 8.2%, and imports also were much stronger. Both pieces of data within the trade numbers imply a Chinese economy still beating strongly despite the Shanghai composite equity index down over 21% this year. There are concerns that the strong export showing this month was influenced by front-loading of exports ahead of the imposition of U.S. tariffs.   Expect equity markets to remain volatile in the near term which will play havoc with interest rates, fx, and commodity prices. Here are a handful of reasons for investors to remain nervous and anxious, which may keep them sidelined:   U.S. interest rates have been marching higher, and in particular over the past few weeks, sending 30-year mortgage rates near 5% which could stall out demand for housing.  U.S. – China trade tensions remain highly elevated with both sides digging in for the long haul with potential repercussions for global growth and inflation.  The U.S. Treasury needs to raise unprecedented amounts of money to finance our debt levels which will keep upward pressure on interest rates.  Inflation expectations remain largely contained for now, but expectations in the future are for higher inflation due to wage increases and tariffs filtering into the economy keeping the Fed tilted toward further rate increase.  Finally, the November elections add another piece of uncertainty to this short term mix of factors as to the composition of the next Congress.   Investors and traders should continue to expect the unexpected in the short term with high volatility and rapid changes in sentiment. Importers and exporters should continue to remain tactical in the short term and take advantage of any opportunities that come their way.

If we can help you with any Foreign Exchange needs, please email foreignexchange@cnb.com 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:

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 bank@banking.offers.report. Please do not reply to this email. To ensure the delivery of future emails, please add foreignexchange@emails.cnb.com 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. TERMS & CONDITIONS  |  PRIVACY STATEMENT NMLSR ID# 536994 | CNB MEMBER FDIC