Morning Commentary: Reducing Risk Once Again

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

Reducing Risk Once Again Share this story: Alan Rose Foreign Exchange Head Trader

U.S. equity and bond markets were closed yesterday to honor the passing of President George H.W. Bush, but the respite did little to change the tone or anxiety from what we witnessed on Tuesday when U.S. equities and interest rates collapsed along with interest rate inversion. Uncertainty, anxiety and angst are forcing investors and traders into cash or other perceived safe havens as markets are in full risk-off mode again today. The U.S. dollar remains on the sidelines relative to all the turmoil in equities and interest rates as investors and traders reduce risk and positioning.   Adding to the already existing tensions in the market from multiple sources was the arrest of the CFO of a key Chinese technology company in Canada (arrested by U.S. request) related to potential violations of U.S. sanctions on Iran. The arrest threatens to ramp up existing tensions between the U.S. and China that could prevent any meaningful progress on trade going forward raising another red flag for the markets.   Markets have clearly shifted from optimism to pessimism beginning in October. Markets are always looking forward and as more negatives appeared on the horizon, long equity positions began to cash out slowly at first until it became a stampede as the market is now pricing in weaker growth and a potential recession down the road. This too will play out at some time as investors will finally get to more balanced positioning, but in the short term, it would appear more equity liquidation is in store with ripple effects through all other asset classes. HERE ARE THE KEY NEWS STORIES FROM OVERNIGHT: Three pieces of U.S. economic data this morning have added to the woes of the market this morning. The ADP employment report (precursor to Friday’s Labor report) was weaker than expected with job gains of 179,000 against expectations of a gain of 195,000. The U.S. jobless claims were also higher for the fourth week in a row adding to concerns about the economy peaking. The U.S. October Trade report showed the largest trade deficit since 2008 with the trade deficit with China the largest on record. The total trade deficit and the deficit with China will only add to continued White House pressure on China for rapid changes in trade.

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