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http://trackresearch.com/articles/the-morning-track-irony/
When the worst case expectations become the best case outcomes. Fears of a populist government in Italy drive a rally back in BTPs. Fears of a China/US trade war are pushed aside as the US tariffs on EU, Mexico and Canada lead to retaliation. A tit-for-tat global trade tariff scuffle isn’t enough yet to derail a global growth recovery but as we see from the PMI reports today May portends a slower June – 2Q isn’t going to be a great bounce back from the 1Q soft-patch. The US ISM and jobs report today will be watched for further signs of US divergence. The USD looks wobbly after a 6-week rush but the real drivers behind performance remain real growth and rates to match. Many are waiting for the usual new month buying to show up – and it did so in Europe but not Asia. The fear of trade disruption, cost pressures and more geopolitical drama hangs over markets there. The BOJ cuts its 5-10-year buying plans to keep rates higher – with the Capex overnight suggesting 1Q
GDP maybe less negative than first reported. The contrast of Europe to such matters – as their fears about politics just prove false. Witness the ousting of Spanish PM Rajoy today. Also consider that the S&P downgrade of Deutsche Bank to BBB+ has become yesterday’s news. The risk barometer today isn’t Gold or JPY or EUR but the larger USD index as it waits for the US jobs report today and clarity over US rate hike gradualism. The battle for 3 or 4 hikes remains central to the fate of risk markets still. It’s ironic that we spent most of the week expecting more from the ECB and FOMC to calm markets and put out the contagion fires, when in the end, the politics and the noise of prices burnt themselves out.
The Morning Track irony
- The Morning Track – Irony by Bob Savagehttp://trackresearch.com/articles/the-morning-track-irony/
When the worst case expectations become the best case outcomes. Fears of a populist government in Italy drive a rally back in BTPs. Fears of a China/US trade war are pushed aside as the US tariffs on EU, Mexico and Canada lead to retaliation. A tit-for-tat global trade tariff scuffle isn’t enough yet to derail a global growth recovery but as we see from the PMI reports today May portends a slower June – 2Q isn’t going to be a great bounce back from the 1Q soft-patch. The US ISM and jobs report today will be watched for further signs of US divergence. The USD looks wobbly after a 6-week rush but the real drivers behind performance remain real growth and rates to match. Many are waiting for the usual new month buying to show up – and it did so in Europe but not Asia. The fear of trade disruption, cost pressures and more geopolitical drama hangs over markets there. The BOJ cuts its 5-10-year buying plans to keep rates higher – with the Capex overnight suggesting 1Q
GDP maybe less negative than first reported. The contrast of Europe to such matters – as their fears about politics just prove false. Witness the ousting of Spanish PM Rajoy today. Also consider that the S&P downgrade of Deutsche Bank to BBB+ has become yesterday’s news. The risk barometer today isn’t Gold or JPY or EUR but the larger USD index as it waits for the US jobs report today and clarity over US rate hike gradualism. The battle for 3 or 4 hikes remains central to the fate of risk markets still. It’s ironic that we spent most of the week expecting more from the ECB and FOMC to calm markets and put out the contagion fires, when in the end, the politics and the noise of prices burnt themselves out.
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Robert Savage
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