Morning Commentary: Moving Day

Foreign Exchange - Morning Commentary

Moving Day

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Alan Rose
Alan Rose
Foreign Exchange Senior Trader
As we arrive this morning, markets are dealing with headlines that broke a few hours ago that China and the U.S. are pushing their trade summit meeting back to at least April. Despite claims of progress on both sides, apparently there are still a number of key issues that need to be resolved, and it is not clear a summit will even take place at all. This news story has resulted in U.S. equities flipping from positive to negative to positive again; the U.S. dollar (DXY) has strengthened after these headlines against almost all the major and emerging market currencies.
 
Switching gears away from trade is the somewhat under reported story related to the Brexit vote. We spend a lot of our time focusing on the Brexit negotiations and analyzing the potential ramifications for the U.K., the EU and the British pound as the March 29 deadline approaches.  The politics and the ebbs and flows of the news cycle are all over the map causing the British pound to whip back and forth. But behind the scenes of all the political theater, there is another important story going on that is much more black and white.
 
That story is the diminishment of London as the top ranked financial center of the world due to all the political, economic, and financial uncertainty surrounding the final Brexit outcome. Banks, insurance companies, asset managers etc. have been putting action and contingency plans in place ever since the Brexit vote back in June of 2016 as no one knew how the Brexit decision was going to be implemented. Last year, London lost its first place global financial position to New York City. Financial institutions (American, European, and Asian) have been migrating services and people out of London to Europe’s secondary financial centers like Frankfurt, Paris, and Dublin over the past two years.
 
For now, the defections away from London to other centers has been relatively small and while many financial institutions are riding out the storm of uncertainty, some institutions have made other stark choices. Bank of America Vice Chairman, Anne Finucane, said that “Dublin is our headquarters for our European bank now, full stop.” So while we will continue to discuss and write about the continuing story of the Brexit negotiations and the future impact on the GBP, the Brexit vote in 2016 is a stark reminder that there is more to the market than analyzing economic data. The Brexit vote is a reminder of how political choices can lead to economic and financial uncertainty and can impact a nation’s economy and currency.
HERE ARE THE KEY NEWS STORIES FROM OVERNIGHT:
  • Canadian New Home Prices saw their first yearly decline since 2009 as they fell by just 0.1% YoY. Toronto and Calgary saw the sharpest price declines while Montreal saw slight increases.
  • U.S. Jobless claims for both weekly and continuing claims came in higher than expected and is now sitting at a four-week high indicating that the job and labor market may be beginning to cool. U.S. interest rates are fractionally lower on the session.
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