Morning Commentary: Market Psychology – Is it too Negative?
A daily summary and commentary of events and factors that affect the global markets, with a particular emphasis on the foreign exchange markets.
Market Psychology – Is it too Negative?
Share this story:
Alan Rose Foreign Exchange Head Trader
While we spend a lot of time dissecting and analyzing economic data to determine the path of multiple asset classes (including fx), truth be told, market psychology plays an equally important part in that formula. Market psychology is very mercurial and changeable, and once the gears shift from optimism to pessimism or vice-versa, the momentum behind market moves can be self-reinforcing for short or long periods of time.
We are in such a period of time now. Beginning in March 2009, U.S. and global equities largely shrugged off almost all negative economic or geopolitical news and powered ahead for nine years on the back of QE. But finally in the beginning of October 2018, global equities began to run out of optimism and could no longer shrug off reality as a multitude of factors coalesced to squeeze all the optimism out of the market and replace it with pessimism.
What began as a market correction now appears to be much more than that. Almost all news is somehow interpreted as negative now and is a reason to sell and move into cash. How long this pessimism and negativity will last is anybody’s guess, but it too will run out of fuel and equities will bottom at some point.
Overnight, Asian equities piggy-backed the U.S. sell off; Europe initially followed suit but during the European session, European equities found their footing and have clawed back much of their losses. U.S. equities have also opened higher. As U.S. equities have sold off since October, U.S. interest rates have reflected that change in sentiment and have come down in yield. The U.S. dollar is net-on-net higher than the beginning of October but is struggling recently as U.S. short term yields have faltered.
We remain concerned about a slowing of the U.S. economy and for a weaker U.S. dollar going forward; we believe that importers will need to be more proactive about covering their positions than in the past.
HERE ARE THE KEY NEWS STORIES FROM OVERNIGHT:
German business confidence for December faltered again with the key IFO business sentiment index dropping to 101.0 from 102.0 and was below consensus estimates. This continues a pattern of weak Q4 data and suggests the German economy is weakening.
U.S. Housing starts rebounded in November and beat expectations rising by 1,256,000. This is the best pace of starts since August; housing permits (indicator for future starts) rose to a seven-month high. Single-family starts fell to their lowest level since May 2017 and dropped for a third straight month. Multi-family starts (apartments and condos) rose by 22.4% offsetting the single-family downturn.
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.
Now accepting scholarship apps Celebrating 40 years of service -- A loan to an innovative company -- Affording your dream home -- Mergers and a new branch in Raleigh View this email in your browser Forward to a friend
Your Market News update for May 30, 2019 | View online Market News News that's moving the market now As Trade-War Worries Linger, Market Seems to Lack Buying Conviction May 30, 2019 8:40 AM | JJ Kinahan 6 min read | Daily Market Update