Morning Commentary: Sideways

Foreign Exchange - Morning Commentary
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Alan Rose
Alan Rose
Foreign Exchange Senior Trader
As we enter a long holiday weekend in the United States, markets are mixed as investors and traders reassess positioning as there has been a significant amount of optimism that has propelled markets over the past weeks.  Economic data overnight has also been mixed (see below).  The mixed economic data combined with mixed messaging from the White House regarding whether or not tariff reductions will be part of the Phase 1 U.S. – China trade agreement has left markets searching for direction. 

U.S. and global equities are correcting lower today after a near historic run in October. However, U.S. and other G7 interest rates are moving in the opposite direction of equities. The U.S. dollar is in its own orbit and, after weakening for most of October, has found new life in November and is higher for the fourth day out of the past five days. Global commodity and energy prices seem to be more in-sync with equities as they are lower on the session and commodity and energy linked currencies are also weaker today.

There is a general feeling on the desk that enough optimism and good news has been priced into the markets related to a break through on the U.S. – China trade talks. At this point in time, we do not even have a site or date for the signing of Phase 1 nor do we know what is included in the Phase 1 agreement. Given the fluid nature of the trade talks combined with uncertainty heading toward the U.K. election, it would seem that investors and traders are taking stock in the short term until further clarity emerges.
  • China trade data for October came in better than expected. The overall trade balance came in stronger than expected at $42.8 billion and while both exports and imports remained in negative territory, they both came in better than expected with exports only declining by -0.9%.
  • Moody’s cut the outlook on India’s Baa2 rating to negative from neutral. It cited increasing risks of a further economic slowdown combined with rising debt as key factors for the downgrade. The Indian rupee is down 0.45% against the U.S. dollar today.
  • Canada posted a weaker than expected jobs report in October after two strong months of gains. Markets had anticipated a small gain in job creation but a small loss of 1,800 jobs was the result with a greater loss of full-time jobs relative to part-time jobs. The UR remained at 5.5% and hourly wages ticked higher from 4.3%b to 4.4%. The labor participation rate remained steady at 65.7%. Canadian interest rates are lower on the session and the Canadian dollar is weaker.
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