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One of the largest hurricanes to hit the US continues to storm through the Southern States today. Markets had their own deluge yesterday that continues today. China Shanghai Composite fell 5.22% - the biggest drop since February 2016 – blamed on US trade war intensifying and the FOMC rate hikes continuing. If money is leaving equities, where is it going? What is the safe-haven from the storm? Bonds are not reacting to this scare in the same way as before, nor is technology as markets search for something else. Central to these questions is the role of financial conditions (or market stability) in monetary policy decisions. The view over the last 24-hours is that money is still easy enough and the pain in stocks normal enough not to change either the FOMC or ECB path to further tightening of policy. Throw in the role of politics as a factor as well – with US President Trump ratcheting up his view that the Fed raised rates too fast. The FOMC will want to show its ind
ependence from such pressure. Perhaps the most obvious shift for the market is intended. Volatility in markets going up as it’s the natural outcome of shifting off from financial repression – just ask Bernanke. What is the safe-haven is shifting with EM currencies bouncing, commodity currencies bouncing despite the drop in oil and copper. In G10 FX, SEK after a higher CPI is up 1.4% and breaking the 55-day support. GBP has broken higher with 1.3492 the 200-day in play following up on yesterday’s flag while EUR holds bid as hedges unwind. Markets are selling the US and buying what is perceived to be cheap (and maybe has value if the Fed blinks). In such times, the right bellwether for risk usually is AUD/JPY, which is the G10 carry trade, and reflects both rate, growth and regional issues. This was the early warning system for trouble in 2008 as its dump in August 2007 marked a key turning point. We aren’t yet at that kind of point and perhaps the deluge in the US
is merely a pull down from everywhere else.
The Morning Track deluge-2
- The Morning Track – Deluge by Bob Savage/articles/the-morning-track-deluge-2/
One of the largest hurricanes to hit the US continues to storm through the Southern States today. Markets had their own deluge yesterday that continues today. China Shanghai Composite fell 5.22% - the biggest drop since February 2016 – blamed on US trade war intensifying and the FOMC rate hikes continuing. If money is leaving equities, where is it going? What is the safe-haven from the storm? Bonds are not reacting to this scare in the same way as before, nor is technology as markets search for something else. Central to these questions is the role of financial conditions (or market stability) in monetary policy decisions. The view over the last 24-hours is that money is still easy enough and the pain in stocks normal enough not to change either the FOMC or ECB path to further tightening of policy. Throw in the role of politics as a factor as well – with US President Trump ratcheting up his view that the Fed raised rates too fast. The FOMC will want to show its ind
ependence from such pressure. Perhaps the most obvious shift for the market is intended. Volatility in markets going up as it’s the natural outcome of shifting off from financial repression – just ask Bernanke. What is the safe-haven is shifting with EM currencies bouncing, commodity currencies bouncing despite the drop in oil and copper. In G10 FX, SEK after a higher CPI is up 1.4% and breaking the 55-day support. GBP has broken higher with 1.3492 the 200-day in play following up on yesterday’s flag while EUR holds bid as hedges unwind. Markets are selling the US and buying what is perceived to be cheap (and maybe has value if the Fed blinks). In such times, the right bellwether for risk usually is AUD/JPY, which is the G10 carry trade, and reflects both rate, growth and regional issues. This was the early warning system for trouble in 2008 as its dump in August 2007 marked a key turning point. We aren’t yet at that kind of point and perhaps the deluge in the US
is merely a pull down from everywhere else.
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Robert Savage
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