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http://trackresearch.com/articles/the-morning-track-anticipation/
The difference between anticipation and expectation drives trading today. One is about actual volatility and the other implied. Expectations are that the FOMC hikes 25bps, sounds a bit dovish and we all move on happy in buying equities, selling bonds, nudging the USD a bit higher and then wait for the ECB to do nothing but sound hawkish about ending its QE and hiking sometime in 2019. That is the playbook. What many are missing from that is the danger of anticipation that this could all prove to be false. The FOMC has plenty of room to surprise markets starting with the IOER, shifting to a regular press conference after each meeting, making them all “live†hike risks, and shifting the target for the balance sheet to $3.5trn from $3.0trn or lower. There is plenty of room for expectations to be disappointed even as the market anticipates such volatility and risk. The feel-good story post the Trump-Kim Singapore summit success didn’t last but lifted some of the equitie
s in Asia. The rally back in Italy maybe the hidden story today as the BTP sales go well after the Italian EU affairs minister Savona says that the "euro not only has positive aspects, but indispensable ones". Savona went on to say that construction of the single market is limited and needs to be perfected with the ECB equipped with similar statute to that of the Federal Reserve. This leaves the overnight headlines as mere noise – with the RBA Lowe speech dovish enough, the UK CPI flat enough and the EU industrial production weak enough to make certain the role of central bankers for driving markets everywhere. The focus on the day is the USD but the EUR is the punchy one to watch given the ECB tomorrow.
The Morning Track anticipation
- The Morning Track – Anticipation by Bob Savagehttp://trackresearch.com/articles/the-morning-track-anticipation/
The difference between anticipation and expectation drives trading today. One is about actual volatility and the other implied. Expectations are that the FOMC hikes 25bps, sounds a bit dovish and we all move on happy in buying equities, selling bonds, nudging the USD a bit higher and then wait for the ECB to do nothing but sound hawkish about ending its QE and hiking sometime in 2019. That is the playbook. What many are missing from that is the danger of anticipation that this could all prove to be false. The FOMC has plenty of room to surprise markets starting with the IOER, shifting to a regular press conference after each meeting, making them all “live†hike risks, and shifting the target for the balance sheet to $3.5trn from $3.0trn or lower. There is plenty of room for expectations to be disappointed even as the market anticipates such volatility and risk. The feel-good story post the Trump-Kim Singapore summit success didn’t last but lifted some of the equitie
s in Asia. The rally back in Italy maybe the hidden story today as the BTP sales go well after the Italian EU affairs minister Savona says that the "euro not only has positive aspects, but indispensable ones". Savona went on to say that construction of the single market is limited and needs to be perfected with the ECB equipped with similar statute to that of the Federal Reserve. This leaves the overnight headlines as mere noise – with the RBA Lowe speech dovish enough, the UK CPI flat enough and the EU industrial production weak enough to make certain the role of central bankers for driving markets everywhere. The focus on the day is the USD but the EUR is the punchy one to watch given the ECB tomorrow.
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Robert Savage
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