Morning Commentary: Détente?

Foreign Exchange - Morning Commentary
Détente?
Share this story:
Facebook
Twitter
LinkedIn
Email
Alan Rose
Alan Rose
Foreign Exchange Senior Trader
We have pointed out on numerous occasions that market sentiment can shift very quickly from positive to negative and vice versa. In the past 10 days or so, the markets have gone from an uber-negative outlook, with the prospect that U.S. zero interest rates are just around the corner, to a much more upbeat and positive outlook for the global economy and interest rates.

The fuel for this shift in sentiment has primarily centered on the thawing of the trade war between the U.S. and China as both sides continue to make concessions approaching the key October meeting. The shift between the two superpowers must be contagious because there are reports in the London Times that the DUP party of Northern Ireland is shifting its red line positions regarding Brexit and fueling a British pound surge today. In the background, central banks continue to cut interest rates adding to the upbeat sentiment.

While global equities have responded to the détente between the U.S and China, G7 interest rates, and in particular U.S. interest rates, have seen a sharp reversal of fortune. U.S. 10-year yields are up an amazing 39 bps in a little over one week. Yield curve inversion continues to reflect the renewed positive outlook on trade as this removes further pressure on the Fed to have to act. While the FOMC is still expected to cut interest rates next week, the probability of further rate cuts has declined sharply in the months ahead.

For the short term, markets and market positioning will adjust to the fact that compromise is in the air. The U.S. dollar (DXY) has been seen as a safe haven currency as the trade war has strongly impacted the global economy but has left the U.S. economy still growing at 2.00%+. Even the DXY is giving ground and shedding some of its safe haven status. Détente and compromise are fueling this change in sentiment, but we still have a long way to go to cross the finish line.
HERE ARE THE KEY NEWS STORIES FROM OVERNIGHT:
  • U.S. interest rates are up sharply again today further fueled by better-than-expected U.S. retail sales for August. Market expectations were centered on a small gain of 0.2% after partial payback for the blockbuster gain of 0.8% in July. Retail sales instead rose by 0.4% fueled by gains in automobile sales and online shopping.
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

Acquisitions or Alliances: What's Your Growth Strategy?