Morning Commentary: Turnovers and Unforced Errors

Foreign Exchange - Morning Commentary
Turnovers and Unforced Errors
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Alan Rose
Alan Rose
Foreign Exchange Head Trader
In sports, you do not want to beat yourself by committing turnovers and unforced errors giving the opposition extra opportunities to score. Regarding the markets and management of the markets, Federal Reserve officials and the White House do not want to make poor decisions, commit policy errors and cause investors to lose confidence in the economy.
Continued market fallout from the Fed’s continuous ratcheting up of interest rates in the face of market anxieties has recently caused another sharp leg down in investor sentiment. Added on top of all the market angst and anxiety, the Trump administration has committed a series of turnovers and unforced errors adding more fuel to an already brewing bonfire of turmoil and uncertainty for the markets.
Even on a relatively quiet and thin Christmas Eve market, U.S. equities collapsed by nearly 3% and yesterday the Nikkei fell by nearly 5%. While there are numerous factors behind the U.S. and global market sell-off since October, here are the three key errors and turnovers committed by the Trump Administration over the past week that have made a bad situation much worse:
  • President Trump’s constant, unprecedented criticism and condemnation of the Federal Reserve and, in particular, Fed Chairman Powell.
  • Treasury Secretary Mnuchin’s round of phone calls to the CEOs of the top U.S. banks concerning potential liquidity issues raised new and unnecessary concerns about the financial stability of the banks adding new levels of angst and uncertainty for the markets.
  • A partial government shutdown with no end in sight that portends and foreshadows a deeper political schism over the upcoming debt ceiling next year and other issues where Republicans and Democrats deeply differ.
Markets always have an inertia and momentum that once in motion, become very difficult to change course both for the positive and negative; we have seen both the bullish and bearish aspects for equities this year. When any administration (Republican or Democrat) attempts to micromanage the economy and in particular the Fed, the results are usually counterproductive.
  • The U.S. S & P 20-city Home Price index rose by 5.03% which was better than expected. However, home prices in 20 U.S. cities slowed in October for a seventh straight month extending the longest streak since 2014. Demand for housing is cooling in the face of higher mortgage rates and highly elevated prices. Las Vegas had the sharpest price increase of 12.8% followed by San Francisco and Phoenix at 8%. The weakest gains were in Washington which rose by 2.9% and NYC which rose by 3.1%.
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