Will US GDP Confirm the Bearish Bias?

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Market Drivers March 28, 2019
Lower yields, growth weigh on risk
Cable hits a four day low
Nikkei-1.61% Dax -0.05%
Oil $59/bbl
Gold $1307oz.

Europe and Asia:
EUR EU Consumer Confidence 105.5 vs. 105.9

North America:
USD GDP 8:30

Declining global yields, confusion on Brexit and general worries about growth kept FX in a tight range today with slight risk-off bias dominating early trade as markets awaited US GDP data at the start of New York open.

The was very little directional flow as most majors remained within very tight ranges and concerns over global growth depressed yields further. US 10 years bonds slid to nearly 2.35% before recovering slightly while Bunds and JGB remained squarely in negative yields territory.

Cable was the worst performer overnight hitting four-day lows as it dropped to 1.3125 on lack of progress on the Brexit front. There is still no majority support for Theresa May’s deal with DUP refusing to support it or even willing to vote abstain which might provide her with a slight margin of victory. With UK Parliament splintered in a myriad of ways it’s difficult to see how any viable solution could appear before the April 12th deadline which could lead to a very stark choice of either spinning out without any deal whatsoever or agreeing to a much longer delay. The UK Parliament appears most united on rejecting the idea of hard Brexit, but lawmakers cannot pass a mutually agreed upon deal, the long delay may force UK to provide a second referendum to the populace as Europeans are unlikely to grant such a motion without something in return.

For now confusion reigns at Whitehall and markets remain skittish, but still hopeful as cable holds above the 1.3000 level.

In North America today the focus will turn to the second revision of US GDP data which is expected to be revised down to 2.4% from 2.6% prior. Although GDP data is backward-looking, the report today could have a material impact on the market because it will offer a clear view of just how much momentum been lost in US economy. With market sentiment already cautious the greatest impact could be to the upside it the numbers show that the slowdown was not as bad as feared. However, if the data misses, it would confirm the bear’s worst fears and USDJPY which has already made one foray towards the 110.00 figure could fall through that level as the day proceeds.

Boris Schlossberg
Managing Director

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