EUR 8.70 For Business Accounts Only

The Morning Track how-close

- The Morning Track – How Close? by Bob Savage
http://trackresearch.com/articles/the-morning-track-how-close/

There are three political questions this week that hang over markets even as the data from PMIs and a host of other month-end events matter – like the Yellen swan song and Powell hearings. The first question is how close Merkel is to a deal with the SPD. The terms and conditions from the Social Democrats start with social policy shifts – translating into more spending. The second question is how close is the US Senate make-or-break vote by November 30th on tax reform. The view that tax cuts are already priced into shares permeates many markets and yet the reality of any deal seems far away. The third question is how close Ireland is to new elections – as PM Varadkar fights to hold the minority coalition government together after the police scandal. This matters to the fate of Brexit talks in December and highlights the fractious state of EU politics everywhere. Catalan will be the next (Dec 21) test of such with polls from El Pais showing no majority. Of course,
the more mundane but immediate concern overnight was China – as shares fall again and bond yields climb. Tech and banks were the focus as financial conditions remain tight. However, higher rates don’t help FX in China but due in other EM. The South African downgrade by S&P to BB+ - one below investment grade better than the 2 notches fears – this drove the ZAR lower to 14.165 Friday, which reversed back 3% to 13.75 1-month highs today. There was little economic data out today – with Japan Service PPI a smidge lower but focus more on BOJ and talk of shifting from yield curve control in 2018 and with Italian Consumer and Business surveys missing the mark but ignored. The search for yield remains all-powerful, but how close are we to that changing remains the investors biggest worry this week. With oil lower, equities rebounding in Europe, the focus is likely on US rates and the curve still ahead of a host of Fed speakers this week and ahead of bigger data like 3Q GDP a
nd ISM. Fears that US rates are going to continue to move lower drives USD selling along with the politics – and that makes the 10Y key with 2.39% the breakout risk.