Morning Commentary: Markets Search Desperately For Direction

Foreign Exchange - Morning Commentary
Markets Search Desperately For Direction
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David Atkinson
David Atkinson
Foreign Exchange Sales Manager
Reading comments this morning from a fellow FX trader at another institution put the current global economic situation in amazingly simple and stark terms.  COVID-19 has produced both a massive supply and demand shock.  The supply shock comes primarily from empty factories in the global supply chain out of China.  The demand shock comes from travel banks, cancelled conferences, and potentially empty sports stadiums and entertainment venues.  There are no easy solutions to these as we all know.  Like the virus itself, there are treatments for the symptoms, but the only cure is to push through this all.

Markets are responding this morning with the chaos that has been typical of the week – After the strong US equity rally yesterday of 3-4%, Asian equities rose as well by 1-2%, and then it all turned around in the European trading session where stocks are down by 2%.  US equities opened lower by 2% and Markets are essentially directionless.

The US 10-year is back below 1%.  The US 30-year Treasury is at record lows of 1.59%.  Remember Valentine’s Day this year. That was the last time the US 10-year was at that same 1.59% level.  This was just three weeks ago but seems like months now.  Canada’s 10-year government bond yield is at all-time lows just below 0.90%.  Other records for all-time lows can be seen in France and Germany’s 10-year yields at -0.33% and -0.66% respectively.  The US dollar is mildly lower against most major currencies today but stronger against a lot of the emerging market currencies.  Oil prices are stabilizing on reports of an OPEC deal to cut production, subject to agreement by Russia.

In the midst of all this, can you believe we have a non-farm payrolls release tomorrow?  Data itself right now is almost meaningless as investors need to see data that shows the effect of COVID-19, which needs to work through the system before we can really assess what happens from here.
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