Morning Commentary: A Leopard Can’t Change its Spots

Foreign Exchange - Morning Commentary

A Leopard Can’t Change its Spots

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Alan Rose
Alan Rose
Foreign Exchange Head Trader
For the first time in many days, we arrive this morning with markets neither overly optimistic nor fearful that the sky is falling. This is the first day in many that global equities are not up or down by one to two percent causing ripple effects through all other asset classes. As we have all been witnessing, equities opening positive or negative has very little to do with the intraday direction or final closing as rapid changes in sentiment appear out of nowhere. For the time being, sentiment remains generally positive as China and the U.S.’s trade talks progress forward inch by inch.
Our title for today’s piece comes from the Old Testament. The meaning of that phrase implies that people cannot change who they are, no matter how hard they might try. The ECB left interest rates unchanged at 0.0% as expected and is in the process of halting its QE program that began four years ago this month.
ECB President Mario Draghi cannot help himself as his DNA is that of a perpetual dove. Despite ending the QE program, he felt compelled to offer continued caution about the EZ economy. He stated that the balance of risks remain to the downside and that significant stimulus is still needed to sustain inflation.  The euro had moved higher overnight but soon lost all its momentum and is now lower on the session. The euro, like the U.S. dollar, continues to tread over the same turf despite all the turbulence in equities and interest rates. Continue to expect more of the same for now with currencies remaining generally range bound.
  • Turkey’s central bank left interest rates unchanged at 24% as expected.
  • Norway’s central bank left interest rates unchanged at 0.75% as expected.
  • Switzerland’s central bank also left interest rates unchanged at -0.75%. They too remained very dovish saying there is no reason to change policy currently and that the Swiss franc remains highly valued. They took the extra cautionary step by stating there is still room to cut interest rates further. The Swiss have had negative interest rates since December 2014.
  • Toronto new home prices fell at the fastest pace in more than two decades in October indicating that rising interest rates, expensive home prices, and tight mortgage lending are taking its toll. Home prices in Toronto fell by 1.4% in October from a year earlier which is the most since September 1996. Overall, Canadian home prices rose just 0.1%, the slowest rate of increase since 2010.
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