EUR 9.24 For Business Accounts Only

The Morning Track amusement

- The Morning Track – Amusement by Bob Savage
http://track.com/articles/the-morning-track-amusement/

We all know the picture – dogs are chasing their tail and children dance with seemingly no concerns – but neither will last and so it goes for the chase to DJIA20K and the hope for a simple trend into Christmas. The overnight news drives markets that are notably thinner than Santa and the “tail” distributions implied from these stories give pause to the present mood of joy and hope and make for less amusement into 2017.
• Chinese 10Y bond yields drop 25bps to 3.194% - as the fear from Sealand Security bond fraud unwinds
• Monte dei Paschi looks set for nationalization – as the debt-for-equity deal fails to get enough capital – BMPS off 0.75%
These two stories leave bond yields lower, fear about the CNY lower and with it drive USD and US bonds. But the other story is about the holidays as the ECB stops buying bonds the front-end collateral squeeze slows and rates rise – leaving the EUR bid – adding to USD correction pressures. The focus on the day is about the US data and what it means to rates and stocks into 2017 with GDP revisions, durable goods, PCE inflation and personal spending all important in the growing divergence between hope for the economy and the present reality. 3Q GDP won’t be repeated in 4Q and 1Q2017 is something to be nervous about given the seasonal noise we have seen over the last 5 years. We could be seeing 2 quarters of below 2% growth in the US and yet the markets don’t reflect that – clinging to Trumpflation and stimulus hopes. The burden of proof remains in the little data stories that drive the bigger picture. This leaves us in a modest correction zone with the EUR the ke
y for the day – waiting for 1.0525 to break to get excited or even amused like watching a dog chase its tail.