EUR 9.24 For Business Accounts Only

The Morning Track frothy

- The Morning Track – Frothy by Bob Savage
http://track.com/articles/the-morning-track-frothy/

Explaining the present mood globally rests on divergence – between the US outlooks remaining robust while the rest of the world merely needs to hold. Overnight the news flows mattered less but were important in this context as Europe saw higher inflation, better Service PMI reports (except in Italy and Spain) and still benefited from the ECB easing of QE purchase rules driving EU fixed income front-end rates lower. This all left the EUR slightly higher as the US rates did little overnight and corporate issuance drives. The fact that the USD remains the plaything of US bonds isn’t a surprise but it does play back to the relationship to equities. Yesterday, oil fell from its WTI $55 breakout in part because of a strong USD. Lower oil was linked to driving down US bonds as well. The USD followed lower rates. There is a circularity to the story that just doesn’t end well. Lower USD, lower oil left the rally in US shares a bit wobbly but that recovered back at the
close thanks to arguments that the USD will outperform and that higher equities will lift up bond yields when/if the DJIA 20K barrier bursts. All of this logic is like the ocean froth on a cold winter day. Beguiling for those missing summer, but dangerous to step into without a wetsuit. These markets are moving and the volatility inherent in all markets is on the rise because of the greater uncertainty about politics in the US and elsewhere. The delivery of policy rather than the promises will be crucial in the next 100 days. The battle for risk maybe best monitored in this froth by watching the JPY with 118.65 the double top to watch.