Morning Commentary: The Paradox of Markets

Foreign Exchange - Morning Commentary

The Paradox of Markets

Share this story:
Facebook
Twitter
LinkedIn
Email
Alan Rose
Alan Rose
Foreign Exchange Senior Trader
July marks the longest U.S. economic expansion in history at 121 months. At this point in time, while some economic slowdown is anticipated, there are no visible signs of a recession. Over the weekend, markets got a boost from the G20 meeting where the U.S. and China agreed to a trade truce and to continue to work out their differences. Despite the upbeat nature of these two events, the glimmer is already fading as U.S. and G7 interest rates continue to plummet to new yearly lows.
 
Markets are always looking forward. Investors remain concerned that future growth will continue to weaken prompting a potential new wave of central bank monetary policy activism. German 10-year Bund yields have made new all-time lows at -0.40% today, and U.S. 10-year yields are testing levels not seen since 2016 when the Fed was at the very early stages of tightening. Markets are pricing in three Fed rate cuts over the next nine months. A number of events over the past 24 hours have changed the interest rate market dynamics:
 
  • The EU seems to be prepared to nominate a candidate (Christine Lagarde) to replace ECB President Mario Draghi; Lagarde is seen as a pragmatist but will also most likely err on the side of remaining strongly in the dovish camp. 
  • President Trump is nominating two new people to the Federal Reserve that also have strong dovish biases. 
  • The U.S. continues to threaten the use of tariffs against the EU with the threat of equally strong retaliation against U.S. exports. 
  • President Trump imposed tariffs of more than 400% on steel imports from Vietnam yesterday. 
  • Today’s ADP Employment report (see below) was disappointing for the second straight month potentially signaling a slowdown in hiring.
 
While all these factors will probably continue to provide ongoing support for equities, other asset classes will reflect more realism about the state of the global economy. The U.S. dollar (DXY) continues to vacillate back and forth reflecting all these short term factors and remains largely unchanged. We remain biased toward a slightly weaker U.S. dollar toward year end.
HERE ARE THE KEY NEWS STORIES FROM OVERNIGHT:
  • The Swedish central bank (Riksbank) kept interest rates unchanged at -0.25% as expected. The tone and language of their commentary was a bit more hawkish than anticipated as the market continues to price another rate increase near year end. The Swedish krona is outperforming today in a quiet market.
  • The U.S. ADP private sector employment report for June was disappointing again. Market expectations were for a gain of 140,000, but the number came in at 102,000 with a small upward revision to May. Back to back months of disappointing data reflect the fact that businesses are becoming more cautious about hiring.
If we can help you with any Foreign Exchange needs, please email foreignexchange@cnb.com or call (800) 447‑4133.
Want to learn more about international finance, economics, and global events? Sign up for our other Foreign Exchange emails and videos!
Follow City National Bank on social media:
Facebook Twitter LinkedIn Google Plus YouTube
Non-deposit investment products:
Are not FDIC insured,
Are not deposits or other obligations of City National Bank and are not guaranteed by City National Bank, and
Are subject to investment risks, including possible loss of the principal invested.
This report is for general information and education only and was compiled from data and sources believed to be reliable. City National Bank does not warrant that it is accurate or complete. Opinions expressed and estimates or projections given are those of the authors as of the date of the report with no obligation to update or notify of inaccuracy or change. This report is not a recommendation or an offer or solicitation to buy or sell any financial instrument discussed. It is not specific investment advice. Financial instruments discussed may not be suitable for the reader. Readers must make independent investment decisions based on their own investment objectives and financial situations. Prices and financial instruments discussed are subject to change without notice. Instruments denominated in a foreign currency are subject to exchange rate and other risks. City National Bank (and its clients or associated persons) may engage in transactions inconsistent with this report and may buy from or sell to clients or others the financial instruments discussed on a principal basis. Past performance is not an indication of future results. This report may not be reproduced, distributed or further published by any person without the written consent of City National Bank. Please cite source when quoting.
Unsubscribe from this list  |  Update email preferences
This message has been sent to bank@banking.offers.report. Please do not reply to this email. To ensure the delivery of future emails, please add foreignexchange@emails.cnb.com to your email address book or safe sender list.
Copyright ©2019 City National Bank – All Rights Reserved.
350 South Grand Avenue, 12th Floor, Los Angeles, CA 90071
City National Bank is a subsidiary of Royal Bank of Canada.
TERMS & CONDITIONS  |  PRIVACY STATEMENT
Equal Housing Lender
NMLSR ID# 536994 | City National Bank Member FDIC
                                                           

Comments

Popular posts from this blog