Morning Commentary: “A Long Time Ago, in a Galaxy Far, Far Away”

A daily summary and commentary of events and factors that affect the global markets, with a particular emphasis on the foreign exchange markets.

“A Long Time Ago, in a Galaxy Far, Far Away” Share this story: Alan Rose Foreign Exchange Senior Trader

There was a time, in the not too distant past, when equity performance was highly, positively correlated with GDP growth. In today’s world, with ultra-low or negative interest rates, there are few options for investors than equities. Equities seem to have a permanent Teflon coating to negative economic data while the bond market reflects the angst of weaker growth, political turmoil, and a failure to close the U.S.-China Phase 1 deal on trade. Weakening or anemic economic data from Japan, China, Australia and Germany overnight have pushed interest rates down for a second day in a row while global equities are only fractionally in the red. Trade talks between the U.S. and China have hit a snag; China is demanding tariff rollbacks and the U.S. is demanding detailed timelines from China on when and how they will purchase U.S. agricultural goods. Markets remain hopeful and continue to look beyond these short term hurdles to an eventual signing of Phase 1 as the abandonment of trade talks and further self-inflicted economic wounds are beyond a mere mortal’s comprehension at this time. Continue to expect this market dynamic between equities and bonds with the U.S. dollar caught in the crossfire between these two events and other geopolitical hotspots including Washington political turmoil. This leaves the U.S. dollar (DXY) steady to stronger in the short term supported by the highest G7 interest rates and an economy that will not quit; service sector and consumer demand are still supporting the economy while manufacturing and agricultural are faltering.  Emerging market weakness also adds to U.S. dollar strength. HERE ARE THE KEY NEWS STORIES FROM OVERNIGHT: Japan reported weak Q3 GDP data as expectations were centered on a 0.9% gain but instead fell to 0.2%. This was partially offset by an upward revision to Q2 growth from 1.3% to 1.8%. The Japanese yen is higher on the session as all safe haven assets are slightly stronger. China reported weak October industrial production and retail sales. They were expected to rise by 5.4% and 7.8% YoY but instead grew only by 4.7% and 7.2%, respectively. In addition, fixed asset investment fell to 5.2% YoY which is the lowest level on record since 1998. Downside risks remain for the Chinese economy, but there is no election for President Xi in 2020 so he can continue to play the long game regarding the trade negotiations. Aussie interest rates and the Aussie dollar collapsed overnight on the back of a very weak October jobs report. Consensus estimates were calling for a 15,000 gain, but instead, there was a decline of 19,000 with a downward revision to September data. Both full time and part time jobs declined, and the UR rose a tick to 5.3%. Germany barely avoided a technical recession by posting a 0.1% gain in Q3 after posting a -0.1% in Q2. The economy grew 1.0% YoY while the entire EZ grew by 1.2%.

If we can help you with any Foreign Exchange needs, please email foreignexchange@cnb.com or call (800) 447‑4133. 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.

Unsubscribe from this list  |  Update email preferences This message has been sent to bank@banking.offers.report. Please do not reply to this email. To ensure the delivery of future emails, please add foreignexchange@emails.cnb.com to your email address book or safe sender list. Copyright ©2019 City National Bank – All Rights Reserved. 350 South Grand Avenue, 12th Floor, Los Angeles, CA 90071 City National Bank is a subsidiary of Royal Bank of Canada. TERMS & CONDITIONS  |  PRIVACY STATEMENT NMLSR ID# 536994 | City National Bank Member FDIC