Morning Commentary: Certainly Uncertain

Foreign Exchange - Morning Commentary

Certainly Uncertain

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Andrew Kositkun
Andrew Kositkun
Foreign Exchange Head Trader
U.S. markets returned from its long holiday weekend to find a risk off tone characterizing the markets.  Equity markets in Asia have closed broadly lower and both European and U.S. markets are currently in the red. 
The outlook for global growth took another hit with the IMF downgrading its global forecasts again.  While the majority of the downgrade circled around Europe (see Germany and Italy), the latest Chinese GDP data showed its economy growing at its slowest annual pace since 1990. 
The trade conflict with the US is often cited as a key headwind to the Chinese economy, and rightfully so, it is important to remember that the Chinese economy was slowing before the trade rhetoric picked up. 
As a result of this slowdown in growth, President Xi issued a warning to top officials and additional stimulus from China is expected.  However the tools available to authorities is less deep than during previous downturns, which could explain why President Xi focused on the need to stabilize rather than stimulate the economy when he spoke of his areas of focus. 
In the U.K. PM May put forward her Plan B for Brexit that looks very much like her Plan A that has already failed by a historic margin.  However, from an economic perspective, there is a silver lining to the process as the opposition put forward a series of amendments that reduces the chances of a no deal Brexit.  Additionally it has been reported that Brexiteers are becoming increasingly open to the possibility of a delay or a second referendum which has helped the GBP rally.  
Finally, in the U.S., the government shutdown heads into Day 32 with no signs of an end despite ~800,000 government workers set to miss a second paycheck.  Over the weekend, the number of TSA agents that took unscheduled absences more than tripled from a year ago.
  • UK labor data came in better than expected with average weekly earnings up 3.4% against expectations for a 3.3% increase.  This is the strongest wage growth in over a decade.   
  • It has been reported that the US will formally request the extradition of Huawei's Meng Wanzhou, adding another complication to the US-China trade talks.   
  • As a reminder, the Bank of Japan meets tonight.  With data disappointing recently, a reiteration of BoJ officials' commitment to stimulus is expected. Currently markets are pricing in a greater chance of a rate cut than a rate hike this year. 
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