Morning Commentary: The Winds of Worry

Foreign Exchange - Morning Commentary
The Winds of Worry
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David Atkinson
David Atkinson
Foreign Exchange Sales Manager
Last week, there were some news stories about how smoke from the California wildfires had drifted over to the east coast and even to Europe, affecting the air quality and giving the sun that eerie red glow that we on the west coast found intriguing and unnerving at the same time.

This seems to be what the financial world is waking up to this morning as well.  While Asian equities were off a little overnight, European equities took a sharp tumble while we were all sleeping in North America, with many off by around 3%.  That overall weakness translated into lower US equity futures, now down between 1-2% as trading gets going this morning.

There is the temptation to blame the weakness on the calendar still seemingly stuck on 2020, and in a way, it is.  Europe is seeing a resurgence of virus infections with the most notable outbreak being in the U.K., but the virus is certainly in no way confined to that country.  France and Spain have been struggling with outbreaks not seen since early in the pandemic.  The situation in the U.K. has led to talk of a new two-week lockdown.  One commentator in London noted that the real bottleneck is testing.  He mentioned a reason I had not thought of that will surely be a problem for all countries in the Northern Hemisphere.  With colds and the flu starting to arrive while Covid is still around, the population cannot distinguish the symptoms between these various ailments without Covid testing.

Another report that is causing worries is a BuzzFeed article about suspicions that five of the world’s largest banks moved trillions of “suspect” funds between 1999 and 2017.  The source seems to have leaked from the Financial Crimes Enforcement Network – FinCEN for short.  Being in this industry, I have a feeling that there is a lot more to this story than the usual twitter-fodder types of analysis.  Banks have to report certain suspicious activity and law enforcement often takes over from there, even to the point of making banks continue to work with a suspected fraud situation as to not arouse suspicion while they investigate.

The US dollar is slightly stronger this morning, up between 0.5-1.0% against many of the majors and 1-2% against more minor currencies.  The weakness in equities has given a boost to bond prices, with the US 10-year yield down closer to 65 basis points.  This is a generally lean week for data, leaving a lot of room for sentiment to move markets.
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