Morning Commentary: The Global Economy – Uncertainty Abounds

Foreign Exchange - Morning Commentary

The Global Economy – Uncertainty Abounds

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Alan Rose
Alan Rose
Foreign Exchange Senior Trader
The global economy continues to show signs of a slowdown coupled with much continued uncertainty surrounding the Brexit vote, U.S.-China trade talks, a U.S. government shutdown, etc. Yet despite all these ongoing concerns, global investors have stopped pushing the panic buttons as global equities have found a near term base and are stabilizing partly due to the sharp correction lower in G7 interest rates.
The British pound is a good example of this most recent phenomenon. Another key vote regarding Brexit takes place in Parliament much later today. The outcome of a defeat for PM May seems to be completely baked into the price…only the magnitude of the loss will be of interest to the market at this time.
Yet the market seems to find solace and comfort in a reasonable loss in today’s Parliamentary vote as it will remove the likelihood of Britain crashing out of the EU or a vote of no confidence for PM May. A loss within market expectations potentially paves the way for concessions that could ultimately lead to a “soft” Brexit before the March deadline. For those that follow the British pound, expect a lot of volatility and erratic price action after the Parliamentary vote, but barring a PM May resignation, the British pound would appear to be building a base of support.
  • China’s government and central bank pledged to provide more support for growth to counter the economic slowdown. This will continue to include tax cuts and lower interest rates; Asian equities responded positively to the headlines while European and U.S. equities are trading sideways.
  • Germany reported GDP for 2018 and it came in weak at 1.5% compared to the 2.2% in 2017. Q4 was particularly weak in 2018 bordering on zero growth; this was the weakest GDP for Germany in the past five years.
  • U.S. Empire Manufacturing came in much weaker than forecast at 3.9 against expectations of a print of 10.0. This is the lowest reading since mid-2017 and reflects a lack of new orders. U.S. PPI for December was weaker than forecast at -0.2% and is the first decline in a year. PPI for the year remained unchanged at 2.5% and ex-food and energy also remained unchanged for the year at 2.7%.
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