A daily summary and commentary of events and factors that affect the global markets, with a particular emphasis on the foreign exchange markets.
Share this story:
Alan Rose Foreign Exchange Senior Trader
Beginning in Q1, U.S. and global interest rates began to diverge from equity performance. While U.S. and global equities have rebounded from their dismal performance in Q4, U.S. and global interest rates remain suppressed as investors and traders become increasingly concerned about a global slowdown precipitated by the trade war between the U.S. and China. This morning, U.S. 10-year yields are revisiting their Q1 lows and German 10-year yields are revisiting their lows seen in 2016. The U.S. dollar is slightly stronger on the session but is a sidebar issue relative to interest rates and equities today.
Disappointing Chinese economic data from overnight and weak U.S. retail sales and industrial production data this morning have caused another sharp downward move in G7 interest rates. One of the key metrics for forecasting an economic slowdown or a recession is when yield curves begin to invert. This is when longer term interest rates fall below short term interest rates. In the U.S., 3-month and 10-year yields have inverted for the second time this year, a warning sign of weaker growth ahead.
Markets will remain on edge as the trade talks have reached an impasse as the war of words continue between China and the U.S. The ability of the White House to micromanage the markets and the trade negotiations is slowly diminishing as China digs in and plays the long game. Both sides need a win and to be able to say that they got the best deal for their respective countries; that appears to be increasingly more difficult. President Trump meets President Xi next month at the G20 meeting; let’s all hope for a breakthrough.
HERE ARE THE KEY NEWS STORIES FROM OVERNIGHT:
China reported much-weaker-than-expected April Industrial Production and Retail Sales. Industrial Production was supposed to rise by 6.5% YoY but rose only 5.4%. Retail sales rose only by 7.2% YoY instead of 8.6% YoY.
U.S Retail Sales and Industrial Production were much weaker than forecast. Retail Sales were supposed to rise by 0.2% but fell by 0.2%; they have now fallen for the second time in three months. Weak automobile sales was the main reason for weakness. Industrial production data fell by 0.5% against expectations of a 0.0% print.
Want to learn more about international finance, economics, and global events? Sign up for our other Foreign Exchange emails and videos!
Follow City National Bank on social media:
Non-deposit investment products:
Are not FDIC insured,
Are not deposits or other obligations of City National Bank and are not guaranteed by City National Bank, and
Are subject to investment risks, including possible loss of the principal invested.
This report is for general information and education only and was compiled from data and sources believed to be reliable. City National Bank does not warrant that it is accurate or complete. Opinions expressed and estimates or projections given are those of the authors as of the date of the report with no obligation to update or notify of inaccuracy or change. This report is not a recommendation or an offer or solicitation to buy or sell any financial instrument discussed. It is not specific investment advice. Financial instruments discussed may not be suitable for the reader. Readers must make independent investment decisions based on their own investment objectives and financial situations. Prices and financial instruments discussed are subject to change without notice. Instruments denominated in a foreign currency are subject to exchange rate and other risks. City National Bank (and its clients or associated persons) may engage in transactions inconsistent with this report and may buy from or sell to clients or others the financial instruments discussed on a principal basis. Past performance is not an indication of future results. This report may not be reproduced, distributed or further published by any person without the written consent of City National Bank. Please cite source when quoting.
Tune in for a guide to ETFs and investing strategies for potential long-term success. View in a browser Fidelity Fidelity Log in Creating a portfolio with ETFs: Why and how Creating a portfolio with ETFs: Why and how