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The deference between illusions and delusions may help as market embark into April, seasonally one of the better months for risk assets, but also one filled with the fundamentals doubts that make selling in May so popular. Illusions are external while delusions are internal. You can only have an illusion by distortions of the senses – for markets this means manipulation and fixings in prices, while delusions in markets are about the psychology of mood, of greed beating fear, all based on false understandings of the fundamentals or misinterpretations of the facts. The allusion to the Lion when we are really just a Tabby Cat seems best on the day where PMI reports underscore the pain of the first quarter and the aspirations for the second – with China back growing but Japan Tankan dropping, Korea exports shrinking and Europe remaining stuck in a downturn with manufacturing at 6-year lows. The HICP from Europe suggests more disinflation despite energy costs and that alone
should worry the ECB and investors, but the EUR is higher thanks to the illusions of China reflation with the PMI reports from the NBS and Caixin all showing a robust March and a return to manufacturing employment albeit it from Beijing forced demand. The focus on elections over the weekend also shouldn’t be lost as the Turkey President Erdogan sees set backs in local elections with Ankara and potentially Istanbul losses fro the AK Party. A comedian with no political experience won the first round in the Ukraine while Slovakia elects a woman as leader and as the UK PM May struggles to hold power with today’s voting key to the Brexit saga. For the FX markets, the 1Q scoreboard was dull in developed markets and painfully predictable in EM with long RUB/short ARS the winner. The real story maybe in the CNY/EUR with CNY up 2.5% and EUR off 2.2% - leaving the US index up 0.5% in 1Q – the relationship of risk-on to growth hopes in China and the EUR remains in play and pu
ts the EUR as the key barometer for the month of ahead. One has to wonder if this rally today is delusion or illusion.
The Morning Track delusions-2
- The Morning Track – Delusions by Bob Savage/articles/the-morning-track-delusions-2/
The deference between illusions and delusions may help as market embark into April, seasonally one of the better months for risk assets, but also one filled with the fundamentals doubts that make selling in May so popular. Illusions are external while delusions are internal. You can only have an illusion by distortions of the senses – for markets this means manipulation and fixings in prices, while delusions in markets are about the psychology of mood, of greed beating fear, all based on false understandings of the fundamentals or misinterpretations of the facts. The allusion to the Lion when we are really just a Tabby Cat seems best on the day where PMI reports underscore the pain of the first quarter and the aspirations for the second – with China back growing but Japan Tankan dropping, Korea exports shrinking and Europe remaining stuck in a downturn with manufacturing at 6-year lows. The HICP from Europe suggests more disinflation despite energy costs and that alone
should worry the ECB and investors, but the EUR is higher thanks to the illusions of China reflation with the PMI reports from the NBS and Caixin all showing a robust March and a return to manufacturing employment albeit it from Beijing forced demand. The focus on elections over the weekend also shouldn’t be lost as the Turkey President Erdogan sees set backs in local elections with Ankara and potentially Istanbul losses fro the AK Party. A comedian with no political experience won the first round in the Ukraine while Slovakia elects a woman as leader and as the UK PM May struggles to hold power with today’s voting key to the Brexit saga. For the FX markets, the 1Q scoreboard was dull in developed markets and painfully predictable in EM with long RUB/short ARS the winner. The real story maybe in the CNY/EUR with CNY up 2.5% and EUR off 2.2% - leaving the US index up 0.5% in 1Q – the relationship of risk-on to growth hopes in China and the EUR remains in play and pu
ts the EUR as the key barometer for the month of ahead. One has to wonder if this rally today is delusion or illusion.
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Robert Savage
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