EUR 8.46 For Business Accounts Only

The Morning Track delays-3

- The Morning Track – Delays by Bob Savage
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It’s Friday and Jobs day in the US so most woke up in the US expecting nothing but a delayed market waiting for 8.31 am and the Hampton Jitney. This wasn’t the case overnight but delays did play a role in the 3 stories moving markets:
• The IMF delays its economic review of Italy and the EUR drops, BTP yields skyrocket. 2Y Italy trades up 19bps to 1.16%, 10Y up 8bps to 3.01% - this is the story of the day – and the panic point – but all that unwinds after China PBOC actions and equities rebound.
• BOE Carney says the chance of UK no-deal Brexit “uncomfortably high.” In a BBC Radio interview on Friday, Carney said a disorderly Brexit is “highly undesirable.” This, of course, begs the question of why the BOE hiked yesterday.
• PBOC fights against CNY weakness with higher reserve requirements for FX forwards from 0% to 20%, reverses Sep 2017 easing. US Commerce Secretary Ross signaled there’s more pain ahead for China unless the Asian nation changes its economic system, while Beijing repeated that it will never surrender to US trad threats. This drives the CNH near 6.90 along with the weaker Caixin Service PMI pointing to the need for more monetary easing along with the Politburo push for more fiscal spending. The question many are wondering is when the PBOC cuts the RRR again and when more leverage from government hits the economy vs. the paradoxical fight to hold CNY and CNH in check.
Stocks in Europe and futures in the US are shrugging off the Asia selling aided by the PBOC line in the sand. This moderates some of the “panic” stories above, but there remains a view that geopolitical risks are coming to a head, whether that is Iran military exercises in the Gulf Strait or China reactions to US tough talk or the UK politics getting even more complicated. All of which puts barometers for risk back in vogue and perhaps it makes for a Dr. Copper house call (with inevitable delays, of course.) Watching $2.70 and $2.80 with the present rebound matching US and EU shares.