Morning Commentary: Better to Be Safe Than Sorry

Foreign Exchange - Morning Commentary
Better to Be Safe Than Sorry
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Alan Rose
Alan Rose
Foreign Exchange Senior Trader
As we arrive this morning, global equities are correcting lower as concerns mount about a continuing global economic slowdown and near zero progress related to the U.S.- China trade talks. Overnight, more evidence validating the concerns about weaker future growth came through the analysis of the Japanese trade data and the fact that South Korea, Indonesia, and South Africa all cut interest rates today joining the recent rate cuts by Australia, India, and Russia.
Japanese trade data today revealed the same ongoing issues that other Asian countries are experiencing as trade tensions continue to weigh on export and import volumes resulting in weaker growth. Japan reported a much larger trade deficit for June than expected, but the numbers within the numbers were revealing with both imports and exports contracting sharply. This fits into the same market dynamic matching Singapore’s negative 3.6% GDP in Q2 as trade volumes decline resulting in less demand and weaker growth.
These dovish actions by other central banks and a lack of progress on the U.S.-China trade talks all but ensure the Fed will cut interest rates at the end of the month. The ECB will be up next week and markets will be keying off of any new actions or change in language related to growth and inflation. Between now and then, expect the U.S. dollar to continue to be generally range bound and lacking direction.
  • Indonesia cut interest rates as expected by 25 bps to 5.75%.
  • South Korea cut interest rates by 25 bps to 1.50%; the market was divided as to whether the central bank would stand pat or cut rates today. Today’s action reverses a rate hike back in November.
  • South Africa cut interest rates as expected by 25 bps to 6.50%.
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