Morning Commentary: Doldrums

Foreign Exchange - Morning Commentary
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Alan Rose
Alan Rose
Foreign Exchange Senior Trader
It might be the shortened work week or maybe it is market fatigue with the same old headlines, but markets are on their heels today. Equities are flatlining, G7 interest rates are weakening, commodity prices are sideways and the U.S. dollar is mixed. Looking at some key volatility indexes (VIX and the JPM currency volatility index), they remain mired near yearly lows also representing the lethargy that has hit the markets.

The euro traded in an extremely narrow range of 18 bps last night which is another indicator of the lackluster and uninspired markets. Despite the more upbeat nature of the recent U.S. – China trade talks, there has been little positive ripple effect for the emerging markets sector; Latin American currencies remain under pressure with the Brazilian real setting a new all-time low today.

Overnight headlines did little to change the market dynamics. Headlines in Asia that Treasury Secretary Mnuchin, Trade Representative Lighthizer and Chinese Vice Premier Liu spoke by phone were quickly shrugged off by the market as this narrative has been ongoing, and markets and investors are near to have factored in a completion of Phase 1 of the trade talks. Even last night’s speech by Fed Chairman Powell where he saw the proverbial glass as “much more than half full” did little to move the needle.

It would appear that at least for this week, we can expect more of the same doldrums unless we get something unexpected. Personally, I find the U.S. and global bond market a better indicator of animal spirits in the markets, and despite the rip-roaring U.S. and global equity markets, U.S. and global 10-year yields remain confined to narrow ranges with yield curve inversion correcting its most recent upbeat run and correcting lower again.
  • In a market that is uninspiring, the British pound (GBP) is the weakest of the major currencies today but remains within its one-month range. Polls are showing some tightening of the race as we head toward the key December 12 vote, and given the poor track record of the Tory party leading up to an election and polling statistics being inaccurate, the GBP has weakened today as have U.K. interest rates.
  • Latin American currencies have had a difficult month with political unrest in Chile and economic problems in Brazil causing contagion for many of these currencies. The U.S. House of Representatives kicking the can down the road on the USMCA trade deal has also not helped sentiment. Over the last month, the Chilean peso is down by 8.27%, Brazil by 5.94% and Mexico by 2.13%.
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