Morning Commentary: A Glimmer of Hope

Foreign Exchange - Morning Commentary
A Glimmer of Hope
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Alan Rose
Alan Rose
Foreign Exchange Senior Trader
Markets have been searching for signs for months now about the state of the global economy. While some asset classes (commodities and equites) have rebounded strongly this year, many other asset classes (foreign exchange) have been caught between a rock and a hard place. The market continues to search for clues as to whether the global economy will continue to grow and expand or if further weakness lie ahead.

Last night’s Chinese trade data and positive bank lending data provided some optimism for a bottoming of the Chinese economy, but there is a caveat. As we arrive this morning, markets are in a “risk-on” mode with global equities, interest rates, and commodity prices all stronger and the U.S. dollar weaker, led by many commodity-linked currencies and the euro.

China posted another strong trade surplus in March but the numbers within the numbers are what provides both optimism and pessimism. Export orders grew by more than expected rising by 14.2% against expectations of a gain of 6.5%. Export orders rising is a tentative sign of more resilience in the global economy as demand for Chinese exports is a positive for global growth, and that is what the markets focused in on today. The caveat is that import orders contracted by 7.6% instead of increasing by 0.2% suggesting that the Chinese economy is still facing headwinds. All of this data is partially affected by the seasonality of Chinese Lunar New Year.

Bottom line:
While this economic news is a short term positive, more time and information will be needed to show that the Chinese and EZ economies are both bottoming and on the upswing. Both exports and imports rising in China and the EZ will provide more reasons to be upbeat and positive about the future state of the global economy.
  • Herman Cain, potential presidential nominee for the Federal Reserve board, may not make it to a congressional hearing after four Republican senators said they would not back the pick.Without support from any Democrats, Cain will not have enough votes for a majority.
  • Fed Chair Powell spoke to Democratic lawmakers last night and reiterated that the Fed will not be swayed by political pressure in any way.
  • North Korea has announced leadership changes which serve to further consolidate Kim’s power.
  • Eurozone industrial production numbers beat expectations, falling by less than expected as German data came in stronger than expected.
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