Morning Commentary: 61 and Counting

Foreign Exchange - Morning Commentary

61 and Counting

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Alan Rose
Alan Rose
Foreign Exchange Senior Trader
Markets remain in a state of emotional turmoil leaving investors and traders on the sidelines awaiting the next piece of economic data or news. For the better part of the past two weeks, both equities and bond prices have remained range bound but have been on an emotional roller coaster where short term trends last 48-72 hours before sharply reversing course. Markets continue to reflect the emotionally charged issues of whether the global economy will continue to weaken or whether the central banks and governments send the cavalry in again to try and save the day.
For today, optimism reigns. European equities are on solid footing implying a positive opening for U.S. stocks. G7 interest rates are steady and the DXY index is near unchanged from last night with the safe haven currencies of Japanese yen and Swiss franc weakening slightly. The foreign exchange market reflects the paralysis and lack of direction of equities and bonds; for the second day in a row, the euro has traded in an extremely narrow range overnight as traders remain sidelined for now.
Italian governments also reflect the lack of continuity and uncertainty as Italian politics represent the worst case of political instability for a major economy since the end of World War II. Italy’s government collapsed last night after being in power for just over a year and Italy will be going on its 14th new administration over the past thirty years and soon to be the 62nd government in place since the end of World War II.  
Since 1945, the average length that a government in Italy has been in power is approximately 1.2 years! To compare how Italian politics differ from the rest of the EZ and the U.S over the past 30 years, Germany has had 3 Chancellors, France has had 5 Presidents, and the U.S. had had 5 different Presidents. Not to worry as all the near term Italian political turmoil has been priced in. Italian stocks are up 2% today and Italian bond yields are lower.
  • Asian equities were mixed to lower as Asian economic data disappointed once again. Japan reported supermarket sales declining well below expectations at minus 7.1% YoY and department store sales also contracting sharply YoY. Korea reported trade data for the first 20 days of August; exports contracted again sharply by 13.3% YoY (similar to July) and imports contracted by 2.4% YoY versus a decline of 10.3% in July. 
  • Canadian CPI for July came in much higher than forecast at 0.5% with the YoY coming in higher than forecast at 2.0%. Canadian interest rates are higher on this news as is the Canadian dollar.
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