Report
EUR 9.28
For Business Accounts Only
http://track.com/articles/the-morning-track-divots/
Divots aren’t dips. The lessons over the long-Holiday weekend came from ECB Draghi and Italian Renzi as they moved markets back into risk – buying-the-dip of another North Korean missile-launch, further Merkel dissatisfaction with Trump – as Europe must go it alone – and further tensions in US politics as the press continues to rail against Trump’s son-in-law Kushner over his Russia and China connections. The UK, US and China enjoyed Monday, but it appears most others didn’t. Italy particularly as Renzi opens up the risk for an early election – perhaps around the same time as Germany’s this fall with the risk of the 5-star movement winning. Alternatives to facts and to present politics aside, did his best to help his home country talking down the EUR with the argument that the Eurozone continues to need extraordinary monetary policy help. The reaction was to remove about 30% of the risk in rates going up soon in Europe – with just an 18% chance of a 10b
ps hike in rates in December now priced, down from nearly 50% last week. The focus on inflation in Europe will be central to keeping this view – and even as both German and Spanish flash May CPI were in line – they were lower and add to downside risks with oil a key part of the story. Positioning is inconveniently long the EUR as the USD has remained out of favor despite the paltry rally back Friday last week. The data from Japan overnight didn’t help support the USD either as retail sales rose more and unemployment holds keeping up hope that the BOJ will eventually win the battle. The mixed results of the weekend leave the focus squarely back on the US data and on rates as the key driver for the USD and other markets. FOMC policy reactions are assumed to be static with the risk of a June hike meaning less in September or vice-versa. The drip down of global rates yesterday in European core means that the US hope for a 2.35% break out for bond bears is going to be ha
rder – the ECB divot maybe all it is now, but the fear remains for a larger dip to 2.15% again in US 10Y.
The Morning Track divots
- The Morning Track – Divots? by Bob Savagehttp://track.com/articles/the-morning-track-divots/
Divots aren’t dips. The lessons over the long-Holiday weekend came from ECB Draghi and Italian Renzi as they moved markets back into risk – buying-the-dip of another North Korean missile-launch, further Merkel dissatisfaction with Trump – as Europe must go it alone – and further tensions in US politics as the press continues to rail against Trump’s son-in-law Kushner over his Russia and China connections. The UK, US and China enjoyed Monday, but it appears most others didn’t. Italy particularly as Renzi opens up the risk for an early election – perhaps around the same time as Germany’s this fall with the risk of the 5-star movement winning. Alternatives to facts and to present politics aside, did his best to help his home country talking down the EUR with the argument that the Eurozone continues to need extraordinary monetary policy help. The reaction was to remove about 30% of the risk in rates going up soon in Europe – with just an 18% chance of a 10b
ps hike in rates in December now priced, down from nearly 50% last week. The focus on inflation in Europe will be central to keeping this view – and even as both German and Spanish flash May CPI were in line – they were lower and add to downside risks with oil a key part of the story. Positioning is inconveniently long the EUR as the USD has remained out of favor despite the paltry rally back Friday last week. The data from Japan overnight didn’t help support the USD either as retail sales rose more and unemployment holds keeping up hope that the BOJ will eventually win the battle. The mixed results of the weekend leave the focus squarely back on the US data and on rates as the key driver for the USD and other markets. FOMC policy reactions are assumed to be static with the risk of a June hike meaning less in September or vice-versa. The drip down of global rates yesterday in European core means that the US hope for a 2.35% break out for bond bears is going to be ha
rder – the ECB divot maybe all it is now, but the fear remains for a larger dip to 2.15% again in US 10Y.
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Robert Savage
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