Global equities were able to claw back last week's loses on Friday and open higher today. Short end US treasures bounced on upside surprise in manufacturing and consumer sentiment data.
News flow has slowed leaving the markets with few drivers. Overall incoming data suggest that global manufacturing has hit bottom but trade tension keeps the “animal spirits” at sidelined. US-China trade talks seem to be positive (although information remains inconclusive) but the passage of the Hong Kong pro-democracy bill in the US could cause diplomatic issues.
Trade tension, demonstrations in Hong Kong and UK election updates do not have much market impact at this point. In our view, the absence of negative information, monetary policy remains supportive of risk-taking. Last week’s minutes from the October FOMC meeting proved no revelations. The decisions to provide another 25bp insurance cut as uncertainty remained and only “tentative signs” that trade tension was thawing. FOMC retained a generally optimistic view of the economic outlook with inflation below 2% threshold and growth in line with the trend.
Member did highlight concerns over employment growth but likely to have been lessened by October's employment reported which shows a meaningfully upward revision in the prior release. In our perspective, the committee is slightly dovish yet further policy adjustment would only occur if data caused a “material change” in the economic outlook.
Our view remains that policymakers continued to presuppose the outcome of US-China talks and broader effects on the real economy. Given Trump's deftness at manipulating the new cycle and want for lower interest rates, trade uncertainty will not be reduced any time soon. Therefore the FOMC dovish shew will remain. Given the stated environment, we remain constructive on EM FX.
Disclaimer: While every effort has been made to ensure that the data quoted and used for the research behind this document is reliable, there is no guarantee that it is correct, and Swissquote Bank and its subsidiaries can accept no liability whatsoever in respect of any errors or omissions, or regarding the accuracy, completeness or reliability of the information contained herein. This document does not constitute a recommendation o sell and/or buy any financial products and is not to be considered as a solicitation and/or an offer to enter into any transaction. This document is a piece of economic research and is not intended to constitute investment advice, nor to solicit dealing in securities or in any other kind of investment.
Although every investment involves some degree of risk, the risk of loss trading off-exchange forex contracts can be substantial. Therefore if you are considering trading in this market, you should be aware of the risks associated with this product so you can make informed decisions prior to investing. The material presented here in not to be construed as trading advice or strategy. Swissquote Bank makes a strong effort to use reliable, expansive information, but we make no representation that it is accurate or complete. In addition, we have no obligation to notify you when opinions or data in this material change. Any prices stated in this report are for information purposes only and do not represent valuations for individual securities or other instruments.