A daily summary and commentary of events and factors that affect the global markets, with a particular emphasis on the foreign exchange markets.
“Curiouser and Curiouser!” Lewis Carroll, Alice in Wonderland
Share this story:
Alan Rose Foreign Exchange Senior Trader
Over the past few days, we have been writing about how markets have reached a short term equilibrium point as they await the outcome of key upcoming events. Equities, commodity prices, and the U.S. dollar have all been hovering within similar ranges over the past week. The odd man out has been the U.S. interest rate market, where without any news or market-provoking economic data, interest rates have been ratcheting sharply higher and yield curves have become less inverted.
The U.S. 10-year yield has marched higher by 31 bps in the past week with 2-year yields up by 24 bps. Yield curve inversion is also abating with 2-year vs. 10-year yields back in positive territory. More importantly, and reflective of this rapid change in sentiment, is the fact that the 3-month vs. 10-year yield curve inversion has gone from -53 bps to -21 bps, its best level since August 2. These moves all reflect a less pessimistic global outlook.
I am old school so price action still remains a very important ingredient in my analysis of the markets. When an asset class begins to move for no apparent reason and unilaterally, my antennae begin to twitch as my history in the markets has taught me that there is a change in the market dynamics afoot. I do not at this time know what that catalyst will be, but between the upcoming ECB and FOMC meetings and the U.S.-China trade talks, there is plenty of room for surprises. If there is a surprise, the other asset classes will not remain idle much longer.
HERE ARE THE KEY NEWS STORIES FROM OVERNIGHT:
China is taking steps to reduce the trade tension ahead of the key U.S.-China trade summit in October. They are exempting certain U.S. goods from the 25% tariffs put in place last year. However, in the key battleground states where farmers are getting hit the hardest, there will be no exemptions for corn, soybean, or pork producers. Global equities are responding positively to this news.
U.S. PPI for August came in near expectations rising 0.1% bringing the YoY rate up from 1.7% to 1.8%. Core prices (ex-food and energy) rose by 0.3% with the YoY rate rising from 2.1% to 2.3%. U.S. interest rates are nearly unchanged after their rapid ascent over the past week, but the U.S. dollar has firmed up overnight in a delayed reaction to the higher U.S. rates.
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:
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.
Tune in for a guide to ETFs and investing strategies for potential long-term success. View in a browser Fidelity Fidelity Log in Creating a portfolio with ETFs: Why and how Creating a portfolio with ETFs: Why and how
Post a Comment