EUR 8.90 For Business Accounts Only

The Morning Track back-to-school

- The Morning Track – Back to School by Bob Savage
http://track.com/articles/the-morning-track-back-to-school/

More lessons from overnight, even if its Labor Day in the US and Canada, there are diligent traders begging for knowledge. There was plenty to consider from the overnight news with North Korea, China, UK, Europe and US politics and economics all in play.
• The first lesson is to buy safe-havens like gold not EUR or USD, Gold is continuing to breakout. North Korea’s 6th and most powerful test of a nuclear weapon – perhaps a Hydrogen bomb - doesn’t matter yet, as the response back to Kim Jung is ongoing with US considering a range of responses, more sanctions, more military warnings more emergency UN meetings, less obvious path to conflict with Kim making China’s Xi more embarrassed than US Trump. Attention to act not on China. However, this is ongoing as South Korea Yonhap news reports another missile launch is likely from the North.
• The second lesson is that private money has to stay private – as the PBOC prohibits finance using virtual currencies like Bitcoin. Bitcoin fell 7% in two hours post the edict. Please note that these are not unrelated events as the illegal activity in some crypto-currencies flows back to North Korea.
• The third lesson is that friends matter - the EU is winning on Brexit, China winning in the BRICS – as the UK Times reports PM May has agreed to a GBP50bn divorce bill for UK to restart talks. In China, the contrast is clear as the BRICS summit leads to Xi promising CNY500mn for economic and technological cooperation.
• The fourth lesson is that popularity requires action – as Congress has recognized over the summer break voters are angry, but even in France, Macron approval ratings are now 30% from 36% as labor reforms haven’t yet been put in place.
• The equation of the week still is likely to be +EUR = -ECB or simply put the stronger the EUR the less likely the ECB is to taper its QE as inflation targets prove more difficult.
While focus today is on CNY and Gold as the big movers post the North Korean nuclear test and likely more missiles – the real focus for the market hasn’t changed from USD weakness and central bank tapering risks. 2018 could see the $100bn a month of bond buying disappear from markets – and that will lead to ever higher rates making credit return as an issue. The market is watching the ECB and the EUR closely in this race to normalization.