Morning Commentary: Always Looking for the Silver Lining

Foreign Exchange - Morning Commentary
Always Looking for the Silver Lining
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Alan Rose
Alan Rose
Foreign Exchange Senior Trader
Global equity markets are closing out August on a positive footing. Equity investors, by and large, are a resilient bunch of individuals who seem to find a silver lining in almost all circumstances. While equities have taken a hit on the heightened expectations of a continuing global slowdown, they remain within striking distance of their previous highs seen in July.

Global equity markets are all green for the second day in a row. The afterglow of China’s announcement yesterday about not immediately retaliating against the latest round of U.S. tariffs and resolving the trade war “calmly” combined with a strong showing by the U.S. consumer in yesterday’s U.S. Q2 GDP are helping short-term sentiment. The near term optimism has even allowed bond traders to calm down a bit as U.S. short, medium and long term interest rates have stabilized but remain inverted.

The U.S. dollar (DXY) is up for the third day in a row helped this morning by U.S. Personal Spending data (see below). So far, the U.S. consumer has remained steadfast in its consumption patterns and has largely shrugged off all the negative news about inverted yield curves and the rising probability of a U.S. recession.

This optimism by the consumer has kept U.S. growth steady compared to its peer group of other trading partners, allowed the U.S. economy to keep chugging along and provided the short term fuel for the DXY to continue to advance against both major and emerging market countries. In the short term, investors and traders remain cautiously optimistic, but as we have witnessed over the past weeks and months, that optimism can evaporate in a moment’s notice.
HERE ARE THE KEY NEWS STORIES FROM OVERNIGHT:
  • Japan reported a slew of data that was very mixed. August Tokyo inflation fell from 0.9% YoY in July to 0.6% YoY. Retail sales for July plunged by much more than expected (down by 2.3%) but was partially offset by better-than-expected industrial production rising by 1.3%. The UR fell from 2.3% to 2.2%. The Japanese yen is slightly stronger today but is stuck in its most recent range since the beginning of August.
  • U.S. Personal Spending for July beat expectations rising by 0.6% following a 0.3% gain in June. Consumer spending accounts for nearly 70% of U.S. GDP so this piece of data is very reassuring. Personal Income for July came in weaker than forecast at 0.1% after a strong gain of 0.4% in June. U.S. interest rates are slightly higher again for the second day in a row.
  • Canadian GDP for June rose by 0.2% slightly beating expectations. This brings the seasonally adjusted GDP rate to 3.7% beating expectations. The report overall was mixed; machinery and equipment purchases fell by 16.2% (biggest decrease since 2016) while exports rose sharply by 13.4%, which is the strongest export growth since 2014. The Canadian dollar is fractionally stronger on the day.
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