Morning Commentary: Conventional Wisdom – Right or Wrong?

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

Conventional Wisdom – Right or Wrong? Share this story: Alan Rose Foreign Exchange Senior Trader

Equity markets are starting the year right where we left off after a spectacular performance in 2019. Asian, European and U.S. equities are all higher today, spurred on by additional Chinese monetary stimulus and Asian PMI readings that have moved higher. Despite the optimism in equities, G7 interest rates are lower and the U.S. dollar has regained its footing against many of the major and emerging market countries. As we begin a New Year and a new decade, what are we to make of conventional wisdom looking towards the future? As the U.S. and global economies emerged from the Great Recession almost 10 years ago, the conventional wisdom was that we would see a normal post World War II economic recovery with interest rates gradually moving back to more normal levels of ~4% or higher. For all the wisdom in Washington and Wall Street, no one foresaw back in 2009 and 2010 that the U.S. would enjoy its longest but weakest post-recession economic expansion in history. No one foresaw or anticipated that it would take nearly five years for the Fed to move away from its ultra-low interest policy and to begin the process of slowly tightening monetary policy and that 10-year yields would peak at just 3.25%. Conventional wisdom looking into the New Year continues to see the U.S. economic expansion continuing as recessionary fears fade spurred on by a Chinese trade deal and hopes for a positive conclusion to Brexit. With inflation continuing to remain below Fed targets combined with this being a Presidential election year and the Fed not wanting to appear political, monetary policy is seen as being on hold throughout 2020. But what if conventional wisdom is wrong? What if world growth rebounds stronger than expected or inflation indices rise above expectations?  Perhaps the U.S. dollar weakens by more than anticipated. For sure, there will be surprises in 2020 and the conventional wisdom at the start of the year will most certainly be tested in ways we cannot yet anticipate. HERE ARE THE KEY NEWS STORIES FROM OVERNIGHT: PMI readings in many Asian countries helped give Asian equities a boost. PMI readings for Thailand, South Korea, and Taiwan all moved back above the key 50 expansionary metric in December after being suppressed for most of 2019. China’s official manufacturing PMI reading was unchanged at 50.2. EZ PMI readings were much less optimistic as the EZ PMI reading weakened to 46.3 which is the 11th consecutive month for the reading signaling economic contraction and partially explains why the euro and other European currencies have weakened since Tuesday.

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 ©2020 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