Morning Commentary: A Brief Reprieve?

Foreign Exchange - Morning Commentary

A Brief Reprieve?

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Alan Rose
Alan Rose
Foreign Exchange Senior Trader
Equity and interest rate markets are attempting to stabilize today after the onslaught of downward equity pressure accompanied by an incredibly swift drop in U.S. and global interest rates over the past two weeks. Markets seem to appear to have priced in enough negative news for now regarding future expectations for weaker global growth as the U.S. – China trade war continues on with no end in sight accompanied by the continued use of tariffs by the White House for continued bargaining leverage.
 
U.S. 3-month against U.S. 10-year yields (inverted yield curve and a metric for a potential recession) had fallen to new depths at -26 bps yesterday which is the most yield curve inversion going back to the Great Recession. Today, that metric has improved to only – 21 bps. In addition, European equities and interest rates are moving higher as are U.S. equity futures and U.S. interest rates have moved sharply higher this morning with 2-year yields up 8 bps today after falling by near 45 bps over the past 11 business days…a truly remarkable collapse in short term interest rates.
 
This situation if very fluid and the carnage the markets have witnessed over the past two weeks can re-emerge in a moment’s notice.  But for now, some stability seems to be in order as the markets appear to have priced in enough negative news for now after the breath-taking drop in U.S. and global interest rates along with global equities over the past two weeks. Even the U.S. dollar is attempting a recovery today after falling sharply over the past 48 hours.
HERE ARE THE KEY NEWS STORIES FROM OVERNIGHT:
  • The Reserve Bank of Australia cut interest rates as expected from 1.50% to 1.25% and left open the possibility of another interest rate cut if required by the economic data as downside risks for the Aussie economy continue to mount.
  • U.K. Construction PMI slipped into recessionary territory today as the number missed badly on the downside. Expectations were for a print at 50.6 but the report came in at 48.6. Yesterday, Manufacturing PMI fell to 49.2.
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