Morning Commentary: Cautious Optimism

Foreign Exchange - Morning Commentary
Cautious Optimism 
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Andrew Kositkun
Andrew Kositkun
Foreign Exchange Head Trader
The most recent World Bank/International Monetary Fund (IMF) meeting ended this past weekend with a bit of a mixed tone. 
The IMF cut its forecast for growth, as the organization took its global outlook down to its lowest level since the financial crisis due to a variety of factors including the impact of higher tariffs that weighed on trade.  This downgrade marks the third time the IMF has downgraded its global outlook in the past six months. 
However, there were also signs of optimism as the fund did see signs for a global economic recovery in the second half of the year.  A dovish pivot from numerous central banks around the world have provided a supportive backdrop for economic growth, and the Chinese economy has shown signs of stabilizing with the IMF raising its forecast for Chinese growth by 0.1% to 6.3% this year. 
To be sure, the projected rebound is an uneasy one with risks remaining skewed to the downside as concerns, including the possible collapse of trade talks between the U.S. and China and a no-deal Brexit, continue to weigh on the markets. 
Significantly, growth risks extend beyond economic factors.  President Trump has been a frequent critic of the Federal Reserve and attacked the Fed again this past weekend claiming that the Fed's policy has put a cap on the stock market as well as GDP growth.
The institutional independence for the Federal Reserve to do what it believes is necessary to support growth, unencumbered by political influence, is a cornerstone of the financial markets. The importance of credible independence was underscored not only by comments from Fed Chair Powell defending his institution's independence but also by comments from ECB President Draghi.  At this past week's IMF meeting, Draghi stated that he was "certainly worried about central bank independence" and especially "in the most important jurisdiction in the world."  These comments are particularly notable not only because central bankers are extremely hesitant to comment on politics or events in economies other than their own but also because it underscored how self-inflicted wounds are detrimental to the fragile global recovery.
  • The New York Fed's Empire State manufacturing survey beat expectations coming in at 10.1 against expectations for an 8.0 print.  However, the index for future business conditions dropped 17 points to 12.4, the lowest level in more than three years.  
  • The U.K. Parliament is in recess this week, providing a bit of a breather for the markets that have been inundated with Brexit headlines. 
  • Multiple reports over the weekend continue to point to an imminent conclusion to the U.S.-China trade talks.  Many in the markets are expecting a conclusion by the end of April/early May with the wildcard being what happens to existing tariffs.  
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