Morning Commentary: Is the Glass Half Full or Half Empty?

Foreign Exchange - Morning Commentary
Is the Glass Half Full or Half Empty?
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Alan Rose
Alan Rose
Foreign Exchange Senior Trader
Global equity markets remain positive and upbeat and see a silver lining in almost all headlines and data releases. The U.S. and global bond markets remain less confident and are lagging behind equity performance; it had led equity performance earlier this year. The U.S. dollar weakened late last week as all safe haven currencies did, and it appears to be trapped in a new range.

Markets remain hopeful that the U.S. and China will find more positive common ground concerning trade in the weeks and months ahead. The U.S.-China trade deal announcement from Friday was underwhelming with no concrete written agreement and only promises to further define “phase one” in the weeks ahead. Even though Friday’s announcement was disappointing to many in the market, equity markets remain hopeful for a reduction in tensions down the road.

Adding to the market uncertainty is the new and increased tension between Turkey and the U.S. Turkey has taken full advantage of the vacuum created by President Trump’s removal of U.S. troops along the Turkey-Syrian border, and the U.S. finally applied economic sanctions on Turkey yesterday. While the Turkish lira weakened late last week and on Monday in anticipation of economic sanctions, the currency has rallied today as the sanctions appear to be less punitive than the market had anticipated.

Finally, the U.K. reported a dismal jobs report for the three-months ending in August where employment fell by 56,000 against expectations of a gain of 26,000. This was the first decline in employment since November 2017. The UR rate also rose to 3.9%. While U.K. interest rates are lower, the British pound is outperforming today on the back of continued headlines supporting progress regarding Brexit discussions and negotiations.

For all of those who follow markets, beauty is in the eye of the beholder and when one person sees the glass half empty, another sees the glass half full. Continue to expect the unexpected.
  • Yesterday, China reported its trade balance for September. Markets had anticipated the trade surplus to fall but it instead grew sharply. While exports declined by 3.2%, imports fell sharply by 8.5% reflecting weakening domestic demand and allowing for the surplus to increase. Chinese exports to the U.S. fell by 22% after falling by 16% in August but were offset by positive exports to the EU and Southeast Asian countries. The Chinese yuan is weaker today after strengthening late last week.
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