Morning Commentary: What Goes Up Must Come Down

Foreign Exchange - Morning Commentary
What Goes Up Must Come Down
Share this story:
Facebook
Twitter
LinkedIn
Email
Andrew Kositkun
Andrew Kositkun
Foreign Exchange Head Trader
At the end of last week, the markets were caught off guard by trade tensions escalating once again.  Using history as a guide, one would expect a market sell-off followed by some positive development to help calm the markets.  

True to form, risk assets sold off sharply after last Friday’s escalation.  However, risk sentiment has recovered after President Trump said that China asked to restart talks, the last part of this well-worn narrative.  Notably, Geng Shuang, a spokesman for the Foreign Ministry in Beijing, said that he wasn’t aware of any weekend US-China phone call. 

Ultimately, whether or not recent talks between the US and China were held is almost a secondary issue.   While markets have responded positively to this latest development and de-escalation is certainly better than continued escalation, the fact still remains that uncertainty is high.  Stock markets in Europe are on track to finish broadly higher, and US equities could very well follow suit.  However, that is just a short-term measure and we have all seen trade talks turn on a dime.  Longer term, the most recent positive developments are unlikely to prompt business to make new investments as further escalation or de-escalation could come at any moment.  

This is where the concern with the trade war lies.  Global growth is slowing, and the trade war is one of the key reasons as illustrated by central bank comments out of Jackson Hole last week.  Market pricing already has Fed Funds going down to 1% as well as other G10 central banks taking their rates further negative.  This implies limited scope for monetary policy to save the global economy from political risks, especially with fiscal help unlikely.  Moreover, with trade war damage akin to termite damage, striking a trade deal is not necessarily an “all clear” signal for the global economy.
HERE ARE THE KEY NEWS STORIES FROM OVERNIGHT:
  • The G7 meeting wraps up today with the US and Japan agreeing to a new deal in principle and the US and France drafting an agreement on internet taxes. 
  • In Germany, the IFO business climate index fell to 94.3 in August, the weakest reading in almost 7 years. 
  • US durable goods orders came in better than expected, rising by 2.1% versus expectations for a 1.2% increase. 
  • Overnight, the offshore yuan (CNH) weakened to its weakest levels since it was created in 2010 but has since retraced some of those losses on positive trade comments
If we can help you with any Foreign Exchange needs, please email foreignexchange@cnb.com or call (800) 447‑4133.
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:
Facebook Twitter LinkedIn Google Plus YouTube
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.
Unsubscribe from this list  |  Update email preferences
This message has been sent to bank@banking.offers.report. Please do not reply to this email. To ensure the delivery of future emails, please add foreignexchange@emails.cnb.com to your email address book or safe sender list.
Copyright ©2019 City National Bank – All Rights Reserved.
350 South Grand Avenue, 12th Floor, Los Angeles, CA 90071
City National Bank is a subsidiary of Royal Bank of Canada.
TERMS & CONDITIONS  |  PRIVACY STATEMENT
Equal Housing Lender
NMLSR ID# 536994 | City National Bank Member FDIC
                                                           

Comments

Popular posts from this blog

Are tax hikes coming?