FX Trader, Loonieviews.net
Summary: Markets have grown increasingly uneasy in the wake of the latest Fed meeting, the nonfarm payrolls blowout, and yesterday's State of the Union.
Traders have had a lot to worry about since last week, including the Federal Open Market Committee meeting, the nonfarm payrolls report and the State of the Union address. Those shoes have dropped, as have all the G10 major currencies against the US dollar. The only exceptions are the New Zealand dollar, which is unchanged, and the Canadian dollar which scraped out a small gain.
Traders are looking for the next plunging shoe and don’t know if it will be fluffy slipper or a steel-toed work boot.
The Bank of England monetary policy decision and quarterly inflation reports are on deck. Bank of Canada governor Stephen Powell, Federal Reserve chair Jerome Powell, and Reserve Bank of Australia governor Philip Lowe have all flip-flopped on policy statement messages in the past few weeks. It would not be much of a stretch to think that BoE governor Mark Carney follows the same playbook.
Brexit was a significant concern at the December 20 meeting. The statement said “Brexit uncertainties have intensified considerably since the Committee’s last meeting. These uncertainties are weighing on UK financial markets.” It went on to say those concerns were weighing on growth and the currency.
Brexit developments took a turn for the worse since that meeting. UK MPs resoundingly defeated Prime Minister May’s Brexit plan. The new strategy is to renegotiate the deal, something that European Union officials have said isn’t going to happen.
Elevated no-deal Brexit fears may be enough for the BoE to issue a dovish statement and open the door to a rate cut.
Wall Street is following yesterday’s rally with a retreat in early New York trading. President Trump didn’t provide any new information or details on infrastructure spending in the SOTU last night, which may be weighing on equity prices. Traders ignored news that the US monthly trade deficit narrowed to $49.3 billion in November.
AI: The good, the bad, and the bubble
While a deep recession may not be iminent thanks to central bank policy, interest rates will have to stay high for longer, and this will be accompanied by volatility risk from the unwinding of bubbles, especially within AI.
Steen Jakobsen,
Chief Investment Officer
The emergence of advanced AI systems is by far the most surprising event this year, turning everything upside down, while risks and benefits are debated. AI will also become an arms race between the US and China.
Peter Garnry,
Head of Equity Strategy
As China navigates global fragmentation, its cycle of technology application, productivity enhancement, and growth is threatened by US breakthroughs in generative AI, limited computing power, and geopolitical tensions.
Redmond Wong,
Market Strategist
Japan’s expertise in semiconductors and robotic integration could be the foundation of AI dominance. Combining two of this year's themes, Japanese equities and artificial intelligence, brings a wave of opportunities.
Charu Chanana,
Market Strategist
The AI fever has turned the technology into a darling, pushing crypto further into no-man’s-land. There are striking similarities between AI and crypto, and if these are to come full circle, AI won't be spared for bubbles.
Mads Eberhardt,
Cryptocurrency Analyst
Stocks related to artificial intelligence (AI) have appeared on investors' radars. Expectations are high, but it may be necessary to consider how to get exposure to AI in a diversified way.
Hans Oudshoorn,
Trainer Academy
The USD is on its back foot as markets celebrate an eventual Fed rate peak and steady long US yields. The stakes are even higher for the Japanese yen if longer major sovereign yield curves have to price in economic acceleration.
John J. Hardy,
Head of FX Strategy
While commodities, broadly speaking, have faced some tough months, a partial reversal during June could signal that the asset class is getting back on its feet with energy holding up and precious metals with upside potential.
Ole S. Hansen,
Head of Commodity Strategy
As inflation remains high central banks face hard decisions about whether they should keep hiking interest rates or stop. Meanwhile, the rise of AI creates bubble-like conditions that only make the decision harder.
Althea Spinozzi,
Senior Fixed Income Strategist
