Morning Commentary: Not Brexit Today!

Foreign Exchange - Morning Commentary
Not Brexit Today!
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Alan Rose
Alan Rose
Foreign Exchange Senior Trader
There has been a lot of news overnight dominated by central bank activity but not by Brexit! In addition to all the central bank announcements, there has also been a large release of economic data from Asia, EZ, and the U.S. While there were a few upbeat surprises, most of the economic data came in weaker than forecast as reduced global trade volumes continue to negatively impact global growth.

However, markets have taken most of the negativity in stride. While Asian equities were mixed, EZ equities are all green and U.S. equities are scheduled to open higher despite another disappointing Durable Goods Order release. G7 interest rates are nearly unchanged and the U.S. dollar (DXY) remains range bound for the fourth consecutive day.
  • Japanese factory activity remains in contraction territory and fell to its lowest level in three years.
  • Purchasing Managers numbers for the EZ continued to show the region on the brink of contraction. German Manufacturing data is deep into contraction territory and is beginning to impact employment. The French PMI Service component came in much stronger than expected and provided a short term boost to the euro.
  • Indonesia cut interest rates for the fourth consecutive time trimming interest rates from 5.25% to 5.00%.
  • The ECB kept interest rates unchanged as expected at 0.0%. ECB President Mario Draghi presided over his last meeting today and offered a rather downbeat and gloomy assessment of the economy with risks remaining “on the downside.”
  • Norway kept interest rates unchanged at 1.50% after raising them last month.
  • Turkey cut interest rates by more than expected from 15.5% to 14%. Interest rates have fallen by 750 bps since July.
  • U.S. Durable Goods Orders for September fell by more than expected at -1.1% and the key component within the report (non-military capital goods orders excluding aircraft) fell for a second straight month down by 0.7%.  Manufacturing fell deeper into contraction territory with the main gauge dropping to the lowest level since 2009.

Much of the negativity regarding many of the economic releases was anticipated so interest rates are largely unchanged on the session with equities remaining generally upbeat buoyed by headlines from China that it is committing to buying $20 billion of U.S. farm goods in year one. As we move toward Friday, expect more consolidation ahead as we prepare for the FOMC meeting next week.
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