The Morning Commentary: First to Worst

Foreign Exchange - Morning Commentary
First to Worst
Share this story:
Facebook
Twitter
LinkedIn
Email
Andrew Kositkun
Andrew Kositkun
Foreign Exchange Head Trader
In 2019, the Thai baht was Asia’s best performing currency, surging ~9% against the USD.  This strong performance, which was more than double the second best performing Asian currency, came despite a weakening economic backdrop.  However, the steady march stronger in 2019 has been replaced by a vicious sprint weaker in 2020 with the baht depreciating ~3.8% in less than a month and as much as ~1.7% over the past two days.      

Heading into 2020, a repeat of last year’s performance certainly wasn’t expected.  Steps from the central bank to ease baht buying pressure, declining exports, low agricultural prices and continued political divisions are all factors that contribute to this view.  Nevertheless, the speed at which the baht has depreciated has been nothing short of breathtaking.    
Likely worries around the coronavirus outbreak has been the key catalyst that has accelerated EM currency losses around the world.  Thailand, as with many other tourist destinations around the world, has become dependent on Chinese tourists.  For scope, Chinese travelers accounted for nearly 40% of spending by visitors to Japan.  Moreover, the U.N. World Tourism Organization estimated that nearly 168 million Chinese residents spent over $277 billion on travel in 2018.  These figures represent a 300% increase in the number of travelers and a 500% increase the amount spent versus a decade ago. 

Ultimately the impact of a slowdown in tourism is difficult to determine as it remains heavily influenced by the extent of the outbreak.  China has been more responsive and transparent in its response relative to the SARS episode but the expectation remains for things to get worse before they get better.  What the negative impact of a pullback in Chinese tourism clearly shows is the acute, and hopefully transitory, economic impact of the outbreak as well as the overall rise in China’s economic influence around the world. 
HERE ARE THE KEY NEWS STORIES FROM OVERNIGHT:
  • The Fed maintained its rate target at 1.50-1.75% as expected and announced that it would extend its repo operations at least through April.  During the press conference, yields and the USD drifted lower as markets interpreted the meeting tilting dovish.  Broadly speaking the meeting went according to market expectations. 
  • The Bank of England kept rates unchanged at Gov. Carney’s last meeting in a 7-2 vote.  The BoE did cut its growth outlook and forecasts inflation to remain below target until the end of 2021.  With the GBP up on the session as markets were priced roughly 50/50 for a cut, however expect gains to be capped as focus shifts to the difficult trade talks ahead. 
  • US GDP came in pretty much in line with market expectations as the headline number printed 2.1% QoQ growth against expectations for a 2.0% print.  Personal consumption did miss at 1.8% vs. expectations for 2.0%. 
  • Concerns over the coronavirus continues to rattle the markets.  The World Health Organization called an emergency meeting today and there is the possibility of a stronger, i.e. negative statement from the organization.  Equity markets in Taiwan and Vietnam reopened today and were down 5.7% and 3.2%, respectively. 
  • Mexico’s GDP beat expectations, contracting by only -0.3% against expectations for a -0.5% contraction.  Ultimately the economy remains weak and further central bank easing is expected. 
  • German CPI came in at 1.7% YoY, in line with expectations. 
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 ©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
Equal Housing Lender
NMLSR ID# 536994 | City National Bank Member FDIC
                                                           

Comments

Popular posts from this blog

Are tax hikes coming?