Morning Commentary: No Victory is Too Small

Foreign Exchange - Morning Commentary

No Victory is Too Small

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Alan Rose
Alan Rose
Foreign Exchange Head Trader
Over the past weeks going back to October, markets slowly flipped from optimism to extreme pessimism. As market psychology slowly shifted to eventually become a stampede, almost any piece of news or data somehow was interpreted as pessimistic about future growth eventually causing huge upheavals in equities and interest rates with ripple effects for all other asset classes.
Volatility remains high and market sentiment can turn on a dime and will continue to be highly emotional going forward. Yesterday, the DJI was down near 507 points in early morning trading and clawed its way back to a small positive gain as it appears that equity and interest rate markets have gotten too pessimistic and too far in front of economic reality. The market seems to be in better balance now as some longer term investors are returning to the markets as they see some value again.
There seems to be progress being made regarding tariffs between China and the U.S. as China is putting a proposal to lower imported automobile tariffs from 40% to 15%. Our tariffs on imported cars is 2.5%. This announcement, while on the surface seems to be offering very little, is being interpreted as a small positive as the arrest and detainment of the CFO from Huawei is not being bundled together with the overall trade discussions from the G20 meeting and is welcome news for the markets.
No victory is too small, and any combination of good news from a number of fronts can change sentiment for the positive. Today, there is a number of good stories (see below) helping to change sentiment; all global equity markets are upbeat and in the black with small corresponding increases in G7 interest rates and rising commodity prices. The U.S. dollar remains sidelined within a short but volatile range.
  • The U.K. got a bit of good news today after yesterday’s deluge of negative story lines and data. Employment for October rose by 79,000 against expectations for a gain of 25,000, and the UR remained near multi-decade lows of 4.1%. Average weekly earnings did rise from 3.2% to 3.3%; the British pound is slightly stronger today but still very much in jeopardy regarding the Brexit negotiations and PM May’s standing.
  • U.S. inflation for November rose by 0.1% and ex-food and energy rose by 0.3% which was slightly above expectations. YoY inflation fell from 2.9% to 2.5%. Energy prices fell 5% from the prior month which is the biggest drop since September 2015. CPI comes out tomorrow.
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