Morning Commentary: Long Live the King

Foreign Exchange - Morning Commentary
Long Live the King
Share this story:
Andrew Kositkun
Andrew Kositkun
Foreign Exchange Head Trader
Since the beginning of the year, the trend for the USD has clearly been higher and the SARS-CoV-2 outbreak has only supported this move. 

Economically speaking the US economy continues to outperform the rest of the world.  Looking forward, the US economy’s continued outperformance and the market’s belief that US assets will be relatively insulated from the SARS-CoV-2 outbreak should support the attractiveness of US assets.  With price action around the world starting to reflect a delineation along the basis of what markets believe will be the most affected by the virus, what are some of the key factors to look at outside of the US? 

To us, activity data in Asia will be critical.  As touched on earlier, the markets are pricing various asset classes based on what it thinks will be impacted.  But the fact remains that the real economy effect remains unknown.  As such, activity data from countries such as South Korea, Taiwan, Singapore, Thailand and China will be important.  With regards to China, the data will be noisy with Lunar New Year effects making it difficult to isolate the virus’s impact. 

As we wait for these data points to come out and, in China’s case, for data to be clarified, policy reactions should be the center of attention. Last week, Singapore announced a series of support packages and markets will be watching to see whether Hong Kong will follow suit with its own fiscal package this week.  On a monetary front, South Korea’s central bank meets Wednesday and is expected to cut rates but acknowledge that it’s a close call.  Should monetary and fiscal support come, the hope is that it will provide a breather, if not stabilization, to the market sell off over the past couple sessions. 
  • Risk sentiment has bounced back a bit with slivers of good news on the SARS-CoV-2 virus.  The Korean won has bounced back strongly, after yesterday’s sell off, as the rate of new cases seems to be slowing.  Additionally, the rate of new infections in China also continues to slow.  Given this, Northern Italy remains on lockdown and Japan has warned of a possible surge in new cases with confirmed cases popping up in more than 16 prefectures. 
  • DM market yield curves continue to flatten with the US 3 month/10 year curve inverted to a level not seen since last October.  While I acknowledge the historical relationship between yield curve inversion and recessions, it warrants mentioning that correlation doesn’t equal causation.  This holds especially now with the preference for government bonds as a hedge for equity risk.     
  • President Trump has asked Congress for $2.5 billion in funding to offset the impact of the SARS-CoV-2 virus.  While the US administration has downplayed the impact of the virus, it could prove to be a vulnerability as the current administration has eliminated many of the infectious disease protocols put in by prior administration during the Ebola scare.      
  • The next Democratic debate will be tonight.  With Bernie Sanders pulling ahead in the polls, expect him to come under increased scrutiny.  Sanders’ win in Nevada was notable not only due to his margin of victory but also due to the coalition of votes that supported him.  Current polling in South Carolina has Biden leading with Sanders in second. 
  • Both the EU and the UK are expected to deliver their respective negotiating mandates today.  The expectation remains for the starting points for the two sides to be far apart. 
If we can help you with any Foreign Exchange needs, please email 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 Please do not reply to this email. To ensure the delivery of future emails, please add 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.
Equal Housing Lender
NMLSR ID# 536994 | City National Bank Member FDIC


Popular posts from this blog

Acquisitions or Alliances: What's Your Growth Strategy?