Morning Commentary: Like Putting Lipstick on a Pig

Foreign Exchange - Morning Commentary

Like Putting Lipstick on a Pig

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Alan Rose
Alan Rose
Foreign Exchange Senior Trader
Markets are on a mild “risk on” mode today but off of their best levels as the markets have reacted to statements from U.S. Treasury Secretary Mnuchin. Regarding the progress on the U.S. – China trade talks, Secretary Mnuchin was quoted as saying “we were about 90% of the way there” which provided a short term catalyst for higher equity and commodity prices as well as interest rates. However, many investors remain skeptical and the Mnuchin quote today is being seen as more political spin on issues that still deeply divide the two countries.
Long term investors remain hopeful that President Trump and President Xi will find a way to jumpstart the stalled talks at this weekend’s G20 meeting.  But the impasse between the two countries on key issues regarding technology and technology transfers and other key issues remains divisive. There are many skeptics who believe that the critical issues that have divided the two key countries will require much more time to resolve and will continue to have a negative impact on the global economy.
My own personal take on this weekend’s meeting is that both President Trump and President Xi will provide a great photo op with both shaking hands and smiling and agreeing to continue the dialogue to bridge the divide between the two countries. I am more skeptical that more time and more pain might be involved before common ground is found and that Secretary Mnuchin’s quote this morning is just political spin.
  • The Reserve Bank of New Zealand kept interest rates on hold as expected at 1.50%. Post meeting commentary stated that perhaps more interest rate cuts would be needed “over time”. Markets shrugged that headline off as the Mnuchin comments carried the day as investors and traders remain hopeful for jump-start to the stalled trade talks. The Kiwi is the top performing major currency today along with many other commodity linked currencies.
  • U.S. Durable Goods orders for May came in mixed today. The headline number was disappointing as it fell below consensus forecasts of -0.3% to -1.3% with April’s data revised lower. But the category of non-military capital goods excluding aircraft rose by 0.4% which was much better than expected. U.S. interest rates ignored the headline data and are higher on the session.
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