Morning Commentary: Markets Between a Rock and a Hard Place

Foreign Exchange - Morning Commentary
Markets Between a Rock and a Hard Place
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Alan Rose
Alan Rose
Foreign Exchange Head Trader
Despite a rash of negative news overnight, equity markets are holding up better than expected; other asset classes are also consolidating today after a short term shift from pessimism to optimism that began late last week. Later today, five Fed governors including Fed Chairman Powell will be speaking, so we can anticipate a wide variety of views on the state of Fed policy and the economy which will probably trigger a somewhat volatile session today.
Overnight economic news was not supportive of future growth. China reported late yesterday that automobile sales fell for the first time in 20 years as they declined by 6% and fell for seven straight months to close out the year; this is reflective of the sharp slowing in the Chinese economy and a sharp fall in Chinese equities this year. Today, both Ford and Jaguar Land Rover both announced job cuts and plant closings in the EZ and U.K. adding to the pessimism. In addition, disappointing Christmas sales for Macy has their stock down nearly 17% prior to the opening.
Markets are caught between a rock and a hard place. There are way too many variables at this time for the markets, whether it be short term traders or longer term investors, to decide whether to be buying or selling. Near term, a shift in messaging from the Fed has brought a relief rally, but behind the scenes, the global economy remains weak which raises concerns about future U.S. growth since the world is so interconnected.
Fitch warned yesterday of a possible cut to the AAA rating for the U.S. If the government shutdown continues to March 1 combined with another pitched political battle over the debt ceiling and budgets with an overhang of deteriorating future fiscal and debt problems, a downgrade could be in order. This just adds one more log to the fire of future uncertainty for the markets to grapple with.
  • China reported both annual PPI and CPI last night and both were softer than expected reflective of weak demand and falling inflation. PPI rose by just 0.9% against expectations of a rise of 1.6% and CPI rose by 1.9% against estimates of a gain of 2.1%.
  • France reported weak industrial production (IP) for November as IP declined by 1.3% against expectations of a flat reading. French economic data has been particularly weak and combined with recent weak German data, points to a flat or negative Q4 GDP for the EZ.
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