Morning Commentary: Who or What to Believe?

Foreign Exchange - Morning Commentary
Who or What to Believe?
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Alan Rose
Alan Rose
Foreign Exchange Senior Trader
Markets have been in an emotional and volatile correction mode over the past 72 hours. White House headlines regarding the potential imposition of tariffs against Brazil, Argentina, and France surprised and shocked the markets. This combined with the President’s off-the-cuff comments that he had “no-deadline” for reaching a trade deal with China and could wait until after the election sent U.S. and global equities and interest rates plummeting.  The U.S. dollar (DXY) has weakened for the fourth straight day.

Yesterday, the DJI suffered its worst day since October 8th falling by ~1%. President Trump stated that the stock market losses were “peanuts” and he preferred to follow employment data. Everyone knows President Trump follows U.S. equity performance and regularly cites the outsized gains as a metric for his job performance.

However, today is a new day.  The White House is now trying to micromanage market expectations and clarify the miss-statements from yesterday concerning a potential Phase 1 trade deal and prevent further equity losses. Unidentified and unnamed sources from the White House, via a Bloomberg article earlier this morning, claim that the U.S. and China are moving closer to a deal ahead of the imposition of more U.S. tariffs on December 15th.

European and US equity markets and interest rates have reversed course from the doom and gloom seen in Asia and are broadly higher.  Even a weak ADP report (see below) has not deterred that optimism. Continue to expect more volatility and ping-pong headlines.
  • The British pound (GBP) is outperforming against both the U.S. dollar and the euro.  The GBP is at its best level against the U.S. dollar since May and is at a 2.5 year high against the euro. New polling continues to show the Tories with a lead over Labor by 10-11 points as we approach the election next week. The GBP is up for the fourth day in a row and combined with a weakening U.S. dollar, is providing coattails for other European currencies to advance.
  • The U.S ADP private sector employment report for November, and a precursor to the official government jobs report on Friday, was very weak. Market expectations centered on a gain of 135,000 but only 67,000 jobs were created.  This is the fewest job gains in the past six months and the second lowest since 2010.  There was even a small downward revision to October. U.S. interest rates barely budged and remain higher on the session as the new headlines regarding trade outranks this weak report.
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