Morning Commentary: Hope or Fear?

Foreign Exchange - Morning Commentary

Hope or Fear?

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Alan Rose
Alan Rose
Foreign Exchange Senior Trader
Markets continue to vacillate back and forth between hope and fear and we anticipate that to continue for the near term. Global equity markets remain hopeful and bottomed at the end of December after collapsing in November and most of December.  Since then, they have surged in January and February only to finally consolidate in March but have picked up steam in April. Lower G7 interest rates and the Fed pivoting from hawkish to neutral have been the main reasons for a resurgence in equities.
Interest rate markets, on the other hand, cratered in November and December in reaction to the weak equity markets.  Interest rate markets have proceeded to move lower as the Fed and other G7 central banks have once again pivoted away from QT to either easing or on hold for the foreseeable future. Almost each and every day, there is data or news to support either an optimistic outlook or signs of an economic slowdown both domestically and globally. 
U.S. Durable Goods orders for February are a good case in point of the bipolar nature of the markets. They came in slightly better than forecasted at -1.6% but January was revised lower from a 0.3% gain to 0.1%. Durable goods orders in general have now been in negative territory in three of the past four months suggesting corporate investment remains subdued amid a slowing global economy. Yesterday, a separate report on ISM manufacturing came in much stronger than expected.  Today, a headline on CNBC states than Manhattan real estate sales have fallen for the sixth straight quarter – the longest losing streak in 30 years and Q1 was the worst quarter since the financial crisis.
Continue to expect more of the same erratic, inconsistent, and opposing data releases and reactions in the markets and divergences between equities and interest rates. While the U.S. economy has been a shining star amidst a global slowdown, there are signs that the U.S. economy is slowing. Investors and traders will continue to reflect the nuances of all these changes.
  • The Reserve Bank of Australia (RBA) kept interest rates unchanged as was expected at 1.50%. Interest rates set by the RBA have been unchanged for nearly three years. The RBA noted that downside risks have increased and the market is pricing in a nearly 70% probability of a rate cut by August. The Aussie dollar and NZ dollar both weakened on this news.
  • The British pound is lower today after the U.K. Parliament rejected all the Brexit alternatives. It was hoped that a narrowing down of the alternatives from eight to four would find a consensus but it was not meant to be. More uncertainty has undermined the British pound recently but the pound remains supported overall amidst a very choppy trading environment.
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