EUR 8.46 For Business Accounts Only

The Morning Track ashes

- The Morning Track – Ashes by Bob Savage
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Welcome to Ash Wednesday, when thinking and rethinking are required as we contemplate life and death and the inevitability that we are all dust and will return to it in good time. When markets don’t react the same way with the same stimulus, investors need to rethink the logic of what got them into their position and what will force them out. Geopolitical risk reduction was a key part of 2019’s bull run with a patient FOMC thrown on top for fun. The rise of US non-manufacturing ISM puts that into question and leaves the jobs report Friday as an event risk for rates again. The hope for a soft and easy Brexit was dashed again overnight as EU/UK talks ended with no agreement last night. The US/China trade deal has been priced as both Xi and Trump want and need a deal, but the fallout from that is in doubt as the quantitative targeting of buying US goods at the expense of other nations – Europe, emerging markets – means higher prices, less USD from exports. There i
s a rising view that any deal is not good enough for the longer-term sustainability of global trade and growth unless you believe that the US can thrive alone. Yesterday’s push from Trump to scrap India’s and Turkey’s participation in privileged trading programs is another warning signal of such fears. Overnight the biggest headline was about the fallout from the failed second Kim/Trump summit in Vietnam. There is a nuclear arms race in play across the world. North Korea appears to be rebuilding its Launch Site for missile testing, Saudi and Iran are in a race to join India and Pakistan and North Korea with nuclear bomb technology. Rethinking the world after WWII continues as the Pax Americana, post the fall of the Berlin Wall, crumbles into a more dangerous world where the US no longer wears the white hat, nor does anyone else. There is rising geopolitical risks as authoritarian nations see there own unhappy citizens and act to the extremes, just as the democracies
see the rise of the populist. Both undermine faith in the rule of law and the order of things. The USD was the winners today in such a world and that is without much rethinking but the real dust up overnight was in the weaker AUD, which broke .7050 support and looks set to test .68 again.

The AUD weakness is important as it contrasts with the China share rally for the 3rd day. Manipulation of the China equity market during the National People’s Congress and its push for stimulus to support the economy isn’t as believable as the AUD and the GDP report today. The per capita growth recession hasn’t been a topic since 2003.