Intraday Market Thoughts

World Trade Overshadowed by Indices

by Ashraf Laidi
May 21, 2019 11:14

It is a session light of data with the USD edging higher and the Aussie underperforming all major currencies following fresh rate cut hints from the RBA. Global indices are in the green after a late session rebound in NY yesterday. Activity picks up tomorrow with UK CPI and Fed minutes, EU Elections on Thursday and UK retail sales on Friday. Also watch any response from Beijing to US ban on Huawei. The video for Premium subscribers below focuses on GBP, gold and indices. A new trade action will be issued on one of our index trades.

Trade Becoming a Problem

Now that the US and China have demonstrated they're in no rush to reach an agreement over the trade spat before June, the impact on global growth could well become a problem, sufficiently serious to not be adressed in time by the Fed and other major central banks. Here are some figures: 

The WTO said in its latest report that out of the 7 indices of international trade (such as merchandise trade volume, auto production and exports) 5 indices are falling below trend. The WTO is sticking to last quarter's decision to downgrade its projections for 2019 global trade growth to 2.6% from 3% in 2018.

According to Bloomberg's calculation of the latest Dutch Bureau for Economic Policy Analysis index, world trade fell 1.9% in the three months ending February from the preceding 3 months, marking the sharpest drop since May 2009.

What does this all mean to FX and indices traders? Aside from Asian currencies resuming their descent and the Aussie suffering along to the benefit of the US dollar, the matter will become an urgent issue for central banks. Today, the probability of the Fed cutting rates in September stands at 46%. This compares to a 72% chance of a cut in December. Stock indices have cooled down to a trading range after no longer manifesting optimism over the elimination of rate hikes. By mid summer, markets will shift to worrying that odds of a rate cut are not high enough, and this will be the Fed's next policy mistake. 

Act Exp Prev GMT
CPI (y/y)
2.2% 1.9% May 22 8:30

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