Morning Commentary: A Potential Course May Lie Ahead

Foreign Exchange - Morning Commentary
A Potential Course May Lie Ahead
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Alan Rose
Alan Rose
Foreign Exchange Senior Trader
U.S. and global equity markets have soared this year after the near panic selling seen in Q4. Where the truth lies between the two emotional states concerning the state of the global economy remains an issue to be debated. Was the reaction in December the correct one in that multiple negative signals forced investors to liquidate or is the two-month rally in 2019 the correct response to a shift in Fed policy and more optimism surrounding U.S.-China trade talks? These are crucial questions as to the state of the global economy and the mindset of investors.
 
It would appear we are about to enter a potential change in momentum for the U.S. and global equities or at least a stalling out of continued equity optimism. Markets are always looking forward and it would appear we have priced in just about all the good news the markets can absorb with the Fed on hold and being “patient” and markets expectations about a U.S.-China trade deal all but certain to occur.
 
However, behind the scenes, economic data from abroad continues to remain weak and U.S. data continues to be mixed. Tomorrow, Michael Cohen, President Trump’s personal lawyer, will begin testifying before Congress. His testimony could be potentially damaging to the President and raise concerns again about illegal or criminal activity that could be damaging to his Presidency.
 
We remind our readers that politics and the markets are heavily intertwined and cannot be separated. Brexit is a prime example of a political vote (2016) continuing to exert immense volatility upon a currency and causing uncertainty for the future state of the U.K. economy and the businesses that reside there. Continue to expect the unexpected.
HERE ARE THE KEY NEWS STORIES FROM OVERNIGHT:
  • The British pound is outperforming this morning,  reaching its best levels against the U.S. dollar since last fall, and is at a 21-month high against the euro. Market expectations regarding Brexit continue to be more upbeat and optimistic of the possibility of a delay to the March deadline or even a second vote occurring. Overlaid on top of the politics is the fact that Bank of England Mark Carney stated today that the Bank of England has made special liquidity preparations if they are needed to help cushion the economy if worst-case scenarios should occur.
  • U.S. Housing Starts for December were very weak and at 2.5 year lows at 1,078,000. Home prices in 20 U.S cities rose in December at the slowest pace in four years at 4.18% which was below consensus estimates. Nationally, home prices rose by 4.7%; Las Vegas rose by 11.4% to be the top performer but prices in San Diego, San Francisco and Seattle actually fell from the prior month on a seasonally adjusted basis. U.S. interest rates are lower on the session. 
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