EUR 8.46 For Business Accounts Only

The Morning Track ba-blues

- The Morning Track – B.A. Blues by Bob Savage
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Forget the raft of economic data pointing to a slowing global economy from China to Europe. Ignore that blip in Japan industrial production. Don’t worry about inflation falling at core and headline in Europe even as the ECB plans to “normalize.” We are in a near neutral world. We are all focused on the summer weather in Buenos Aires where the G20 meets and we are all prepared to listen to the blues whether that is side deals between Saudi and Russia on oil, US and China on trade, Russia and Germany on Ukraine. Throw in UK May and the EU, Italy and the EU and you see politics more than consensus building. Markets are prepared to wait out this winter weekend in the Northern Hemisphere. The worsening world outlook includes the US and its showing up in the usual places – jobless claims. This is the best weekly indicator you can find on the health of the US economy and its flashing its first yellow signal in years, albeit from decade low levels. The other signal stil
l in play is the yield curve where lower oil prices have pushed down inflation expectations and policy tightening views just in time for FOMC Powell to find some dovish feathers in his sling of hiking arrows. Overnight, the hike from the Bank of Korea might be worth thinking about in the context of 2019 and emerging markets. The bounce back in risk this week has slowed a bit into the B.A. Blues and we are all waiting to see the way the G20 races like jockeys for comparative advantage on FX, trade, and global capital. Korea is a case in point. There is a long-term trend up for the USD but the noises from 2015 haven’t been repeated yet in FX, just like we are all waiting for 7 to break in CNY, so too, 1145 in KRW seems far away. To put this in perspective the flightless NZD and the KRW now have the same interest rate. The importance of global trade, oil prices and technology demand all are reflected in the KRW rate and that is singing the blues despite the BOK action.