Morning Commentary: He Said, Xi Said

Foreign Exchange - Morning Commentary
He Said, Xi Said
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David Atkinson
David Atkinson
Foreign Exchange Sales Manager
There are conflicting reports this morning as to whether or not there is significant movement on a trade deal, or at least the beginning of one.  A Bloomberg story overnight reported that President Trump wants to reach a deal with China at the G20 summit later this month, and indeed, the President did tweet about a phone call with Chinese President Xi Jinping on Thursday, saying that trade talks are "moving along nicely."  A senior administration official, according to CNBC, disputed that notion of such positive movement on trade.  My take is that the truth lies somewhere in the details.  It is hard to see how this could get wrapped up so quickly this month, but it may be at least in someone's draft.

Before that market-moving sequence of events, you could be forgiven for expecting a dire repeat of the equity action in October.  Apple released earnings last night with disappointing guidance, and the stock dropped in after-hours trading.  When this happened with other big tech companies last month, we saw blood spilled in Asian, European and then U.S. equity markets.  Instead, we got strong stock gains around the world overnight that led into U.S. trading hours.

The much-anticipated non-farm payrolls print for October was unambiguously strong but left markets with mixed emotions.  The headline number showed a gain of 250K for October against expectations of around 200K.  The unemployment rate stayed at 3.7% as expected, but average hourly earnings jumped 3.1% YoY, the biggest jump since 2009, clearly keeping the Fed on its tightening path.  Pre-market equity trading eased off as the early morning went on, but I tend to believe that equity markets are more focused on China and tariffs than wage pressures, at least for now.

The U.S. dollar is overall softer again today as risk assets rally.  In particular, Asian currencies are strong this morning on the hopes of an ease in trade tensions.  Speaking of trade, lost in all this is news about the September trade deficit, which widened to -$54 billion from the previous reading of $53.3 billion.  These days though, two-month old data is considered ancient with so much else happening right now.
HERE ARE THE KEY NEWS STORIES FROM OVERNIGHT:
  • Italian manufacturing declined the most in four years, as the euro-area manufacturing PMI came in below expectations and posted the weakest reading in two years.
  • Although not technically “overnight”, Canada’s jobs report disappointed with job gains of 11.2K against expectations of a 15K increase.
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