Morning Commentary: High Steaks Dinner

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

High Steaks Dinner Share this story: Alan Rose Foreign Exchange Senior Trader

Markets continue to churn and fluctuate within the same general ranges we have been witnessing over the past few months. U.S. and global equities have rebounded from their sharp collapses in Q4 with ripple effects for interest rates, commodities, and foreign exchange. But, there remains so much uncertainty regarding so many issues that it makes it very difficult to make rock-solid predictions about the future because the variables have the potential to send the markets into extreme optimism or pessimism.   Overlaid on top of the uncertainty about U.S.-China trade talks, Brexit, Fed policy, and Washington tribal warfare etc. is that market synergies and interactions are not working as well as they have in the past. These breakdowns in how markets function (whether fundamentally driven or due to high frequency trading or AI) only add to the confusion and volatility for traders and investors as to how to correlate and predict the future.   Adding to the confusion and raising eyebrows is the fact that Fed Chairman Powell dined with President Trump last night (steaks were indeed served). It is quite rare for the Fed Chair to meet and dine with the President as the Fed is supposed to be apolitical. A high profile meeting like this raises concerns about the Fed’s political independence, especially because of the President’s harassing of the Fed in Q4 and the Fed shifting gears from hawkish to more dovish. The last time the two men met was November 2017. This is the lead story at 6:00 am on CNBC.   Tonight, President Trump gives his State of the Union address to the nation. No doubt there will be a call for bipartisanship to end the stalemate regarding the southern border and to avoid another government shutdown. Markets today are hopeful for a conciliatory speech that leads to finding common ground to resolve the current gridlock in Washington. However, in the background, they are also prepared for a political speech that lays the groundwork for the President to use his emergency powers to build a wall that will further rile political juices. HERE ARE THE KEY NEWS STORIES FROM OVERNIGHT: In a subdued fx market overnight, the Aussie is the top performer. The Reserve Bank of Australia (RBA) met last night and met market expectations by keeping interest rates unchanged at 1.50%. The RBA did not shift to an easing bias as some had expected and the view on the RBA meeting was a more hawkish hold. In addition, Aussie retail sales for December were weaker than expected at -0.4%. Aussie trade data showed a larger trade surplus with sluggish exports and a sharper downturn in imports. The British pound is down for the fourth day in a row on the back of the U.K. Composite PMI reading below expectations at 50.3 following a December reading of 51.4.

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