EUR 8.70 For Business Accounts Only

The Morning Track bubbling-up

- The Morning Track – Bubbling Up by Bob Savage
http://trackresearch.com/articles/the-morning-track-bubbling-up/

The speed and size of the bubble make clear the difference between good Champagne and bad sparkling wine. Quality needs no provenance, but quantity does. So too, the same is true for markets as the bubble up in yields and equities, oil and most FX against the USD are measured in crystal flutes. US bonds are the focus for markets this morning as the 1Q supply expectations bubble up and collide with FOMC balance sheet roll offs to make obvious the government will be selling much more debt to the global markets. The US treasury announces new auction plans this morning making the rather mundane event exciting. The premium for such entertainment is worth 5bps in 10Y this morning. Of course, there are plenty of other factors driving up US yields – growth expectations for 2018 are highs – witness the NABE survey overnight, the GS forecast shifts, the ongoing 4Q earnings reports with robust 1Q outlooks for the S&P500 and the cacophony of comments at Davos from the World elite a
bout 2018 global coordinated growth. Leverage is in demand again and that means the cost of money is rising everywhere but the US leads that charge today. The return of correlation for USD and US rates is a welcome relief to some but unlikely to help risk-on moods even as the bubbles rise to the top. US markets face the divergence of 4Q earnings supporting shares against present yields dampening them along with the USD bounce cutting back some exporter dreams. The rally up in rates maybe makes the case for the FOMC to pull back the punch bowl faster and that will be something to watch for in their statement later this week.