Morning Commentary: A Small Spark of Life

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

A Small Spark of Life Share this story: Alan Rose Foreign Exchange Senior Trader

Prior to 5:30 am PST, markets were extremely quiet with small narrow ranges to most asset classes as markets remained largely caught between bullish and bearish camps leaving investors uncertain about which path to choose. Prior to 5:30 am PST, the euro had traded in an almost unfathomable range of just 15 bps since we left last night! For those not that familiar with the history of free floating exchange rates, this is almost unheard of, especially for being the second most important currency to the U.S. dollar. But this pattern of microscopic movements in foreign exchange rates has been ongoing for months despite the volatility in interest rates, equities and commodity prices. Continue to expect more of the same.   All markets were jolted this morning as two pieces of economic data from the U.S. surprised investors and traders as the data came in away from expectations and caused U.S. interest rates to jump, pulling the U.S. dollar to higher levels. U.S. PPI for March came in much stronger than consensus rising by 0.6% bringing the YoY rate up from 1.9% to 2.2%. PPI, ex-food and energy also beat expectations rising by 0.3% bringing the YoY rate down from 2.5% to 2.4%. U.S. jobless claims decreased to 196,000 beating all estimates, bringing the four-week average to 207,000 which is the lowest level since December 1969.   The Federal Reserve has signaled that they are going to be patient and are prepared to move interest rates higher or lower as needed. Market expectations regarding the Fed's next move have shifted slightly from the beginning of the month. On April 1, market expectations were looking at the probability of a fed rate cut of nearly 70% in January of 2020. Since last week, that probability has dropped to 57%.  This slight change in expectations has provided little fodder for any additional market movements. More data will be needed as the market and the Fed have both become overly data dependent. HERE ARE THE KEY NEWS STORIES FROM OVERNIGHT: The U.K. and the EU have agreed to extend the Brexit deadline to October 31. This was a compromise by both sides; the U.K. had asked for a June 30 deadline but the EU favored a longer one up to one year. Neither the U.K. or EU want a no-deal Brexit outcome; the markets continue to price in some sort of soft Brexit final outcome. The British pound is little changed on this news.

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