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
While yesterday’s FOMC announcement at 11:00 PST generally met expectations, it did little to rile the markets. Markets received the anticipated 25 bp cut by the Fed, and for the next 30 minutes, markets were relatively stable. However, the press conference that followed caused the markets to become unglued.
While the Fed can be extremely careful in its normal written communications, having the Fed Chairman go before Congress or the press can be much more challenging. Yesterday, Fed Chairman Powell was on the defensive from the first question; he did a poor job of providing a clear message and clarifying the need for the 25 bp cut in interest rates whether it was related to trade, inflation or other factors. Markets were taken back with Fed Powell’s phrase of a “mid-cycle adjustment” implying a “one and done” interest rate cut while the market had priced in a rate reduction cycle. In addition, there were two dissenting votes to keep rates on hold.
Markets moved immediately on these comments with the net result of U.S. equities getting hammered, more U.S. interest rate inversion, and the U.S. dollar spiking higher. Whether this was the desired result is not clear at this time. While the intent of the press conference is to provide more clarity and messaging, too many times the net result is the opposite as the Fed Chairman is not fully prepared for the wide array of questions from the press. There is no upside for the Fed under these circumstances and they should rethink the need for press conferences after every meeting.
Looking at the damage to the markets overnight, as investors have reacted to Chairman Powell’s comments, saw U.S. and Asian equities react sharply lower, but European equities have found some footing and are generally stable. The U.S. dollar immediately took off after the “mid-cycle adjustment” comments and hit a 2-year high overnight; the DXY index is up in eight of the past ten sessions. G7 interest rates have stabilized for now, but we can anticipate heightened volatility going forward for all asset classes as markets are less certain about the future path of monetary policy and the U.S. and global economies’ performance. Our first inkling of increased volatility comes tomorrow morning after the U.S. Jobs report.
HERE ARE THE KEY NEWS STORIES FROM OVERNIGHT:
The Bank of England (BoE) left interest rates unchanged as expected at 0.75%. The vote was unanimous at 9-0 to keep rates on hold at this time. An interesting footnote to communication after the announcement is that while the BoE has prepared the financial system for a no-deal Brexit, they are still working off of the assumption that this is not the most likely outcome. The odds of a no-deal Brexit have spiked higher to nearly 38% over the past weeks. The British pound is down for the sixth day in a row.
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.
Now accepting scholarship apps Celebrating 40 years of service -- A loan to an innovative company -- Affording your dream home -- Mergers and a new branch in Raleigh View this email in your browser Forward to a friend
Your Market News update for May 30, 2019 | View online Market News News that's moving the market now As Trade-War Worries Linger, Market Seems to Lack Buying Conviction May 30, 2019 8:40 AM | JJ Kinahan 6 min read | Daily Market Update