Morning Commentary: Helter Skelter

Foreign Exchange - Morning Commentary
Helter Skelter
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Alan Rose
Alan Rose
Foreign Exchange Senior Trader
Markets remain confused, chaotic and overwhelmed by the current news cycle and competing political crises. Markets have been vacillating back and forth all week between optimism and pessimism as sentiment shifts abruptly. One day, the current spin is more optimistic and upbeat allowing equities and interest rates to rise and the next day, without any particular trigger mechanism, markets reverse course.

The fluid nature of the news cycle regarding the latest political crisis the President has found himself in will continue to keep investors and traders on edge for weeks and maybe months. Continue to expect the unexpected and for markets to remain highly erratic and whippy. History has shown that the two most recent impeachments of sitting Presidents had two very different outcomes for the markets and these outcomes were more dependent on the economic circumstances under which they occurred.

Regarding President Nixon’s impeachment, the S & P fell 25% from the time of the Watergate break in to his resignation…a total of approximately 26 months. Markets were still reeling from the first oil embargos and higher inflation. President Clinton’s impeachment process, which lasted nearly four months, saw the S & P rise by 22% reflecting the very strong economy driven by the rise of Silicon Valley and the dot-com phenomenon.

One thing is certain. The impeachment process will stymie any legislative undertakings or bipartisan efforts in Congress. Markets will continue to be “data-dependent” and react to economic data and any new monetary initiatives by global central banks. The next round of U.S. – China trade negotiations is just around the corner and the White House will need to find a way to come out with a small victory, even if it is a limited breakthrough, to keep themselves relevant during these uncertain times.
  • The New Zealand dollar is the top performing major currency today on the back of RBNZ Governor Orr stated that rate cuts are working and played down the need for unconventional policy tools. While NZ interest rates barely moved, the Kiwi is up 0.85% as the market covers shorts.
  • The final revision of U.S. Q2 GDP came in at an unrevised 2.0%. Consumer spending remained strong but was revised down from 4.7% to 4.6%, which remains the strongest consumer spending in 4.5 years. Business investment was revised much lower to the steepest declined since Q4 2015. U.S interest rates are lower and the U.S. dollar has declined since the report.
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