Morning Commentary: Near Term Saturation Point?

Foreign Exchange - Morning Commentary
Near Term Saturation Point?
Share this story:
Facebook
Twitter
LinkedIn
Email
Alan Rose
Alan Rose
Foreign Exchange Senior Trader
We appear to have reached a near term saturation point in terms of how much good news the market has already priced in. This takes into account all the surprisingly strong U.S. economic data points from last week and all the optimism surrounding a breakthrough deal on trade between the U.S. and China hopefully to be signed this month. The bond market has consistently been a better barometer for reflecting market sentiment and judging the state of the U.S. and global economy; G7 interest rates are correcting lower today after powering ahead for three straight days. Global equities remain positive overall and the U.S. dollar is consolidating after strong gains over the past two days.

Taking a longer view, market sentiment has improved measurably over the past weeks and months and from a year ago. Yield curve inversion maxed out in early September with the U.S. 3-month versus 10-year yield in negative territory by nearly 55 bps; today, that number sits at positive 27 bps. U.S. 10-year yields were sitting at 1.43% in early September and are now up by nearly 40 bps at 1.83%.

The risk of recession continues to inch down as market conditions and sentiment improve. Today, the Bloomberg Economic model indicates the probability of a recession within the next 12 months at 26%. That has been steadily falling from the near panic environment one year ago when the odds of a recession were sitting at nearly 50%. There remain numerous reasons to continue to keep a close eye on the economy and political events but less reason to be anxious. Here's to hoping that the momentum that has been generated over the past weeks and months continues to power the longest U.S. economic expansion in history ahead.
HERE ARE THE KEY NEWS STORIES FROM OVERNIGHT:
  • New Zealand’s jobs report for Q3 came in near expectations as the economy appears to be stabilizing. Job growth increased by expectations at 0.2% for Q3 and the labor force participation rate beat expectations at 70.4%. The UR did rise above expectations to 4.2% from the 3.9% in the previous quarter. NZ interest rates are unchanged on the session as is the Kiwi.
  • The Bank of Thailand cut rates by 25 bps to 1.25% as expected. This is the second cut this year and brings interest rates to a record low. Two of the five voting members voted against the move. The Thai baht (THB) continues to outperform its Asian peer group by nearly 7.5% this year and has appreciated by nearly 15% since the end of 2016.
  • U.S. nonfarm productivity for Q3 unexpectedly fell by 0.3% against expectations of a gain of 0.9%. This was the first decline in nonfarm productivity since 2015. Part of the explanation for the negative print was a steep rise in wages from the 2.6% level in Q2 to 3.6% in Q3. Unit labor costs were up by 3.1% YoY, the fastest increase since 2014.
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:
Facebook Twitter LinkedIn Google Plus YouTube
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
Equal Housing Lender
NMLSR ID# 536994 | City National Bank Member FDIC
                                                           

Comments

Popular posts from this blog

Fidelity: Bollinger band stock signal