Morning Commentary: Coming Full Circle

Foreign Exchange - Morning Commentary
Coming Full Circle
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David Atkinson
David Atkinson
Foreign Exchange Sales Manager
Markets are slow-walking their way into the weekend, with a mixture of geopolitical risks and economic data resulting in a mild risk-off stance during the Asian and European sessions followed by a slightly risk-on opening to North American trading.  

The story while we were all asleep was that Chinese industrial output growth slowed from 5.4% to 5.0% in May, while Chinese fixed-asset investment slowed from 6.1% to 5.6%. That was somewhat offset with retail sales in China rebounding from 7.2% to 8.6%. This news is mitigated somewhat by a calendar quirk that fit more holidays into May, so a little less production and more spending is to be expected.  Nevertheless, China promised more stimulus (again) to guard against the overall slowdown it is having to fight from the tariff war and massive debt burden.

Things turned around when US retail sales for May were on balance positive.   The headline number of 0.5% was slightly below estimates, but it was more than offset by the same 0.5% number coming in for the core number ex-autos and significant revisions to previous months.   This data was followed by US Industrial Production coming in at 0.4% instead of an expected 0.2%.  As a group, all of this data gave markets the coffee it needed to get moving this Friday morning.  These are the last major data points before the Fed meets next week to discuss if dour market projections of the global economy are really all that bad.  As is typical, the answer is mixed and somewhat complicated.

Following the full circle theme, Asian and European equities were slightly lower overall, but US equities broke the pattern and are slightly positive as we get going this morning.  Bond yields were down a basis point or two around the world, while the US 10-year is up from 2.09 to 2.10 – try to contain your excitement. 

The US dollar has had a good week as it has been up against all the major currencies and is continuing that move today.  The DXY index has regained almost a third of the losses it saw since it recently peaked on May 30. 

Finally, basketball has come full circle as well.  I didn’t even know until watching the end of the NBA finals last night that the first NBA game was played in Toronto on November 1, 1946.  Back then, it was the Toronto Huskies against the New York Knicks.  Now the NBA championship will reside in Toronto with appropriate bragging rights, and then we start this again in the fall.
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