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The Morning Track july-4th-markets-pov

- The Morning Track – July 4th Markets - POV by Bob Savage
http://trackresearch.com/articles/the-morning-track-july-4th-markets-pov/

It all depends on your point of view. The world of the US/USSR cold war used to have the debate about revolutions where one nation’s freedom fighter was another’s terrorist. We somehow have lost the urge for such battles and freedom isn’t a word used as frequently now when referring to movements against governments. The Arab Spring seems to have faded back to a cold war between Saudi and Iran in Yemen, US and Russia in Syria, EU and Russia in Ukraine. Given that today is US Independence Day and we are all looking for the inalienable rights of life, liberty and the pursuit of happiness, perhaps the lens of politics matters to markets again. If you look at the battle between EU and UK over Brexit terms you would see a rebellion less than a revolution. Talk of UK May putting the weakest possible Brexit deal to her cabinet is such an example. Merkel in Germany would like to believe her coalition battles over immigration are similarly just a minor pushback on the road
towards a more stable government as talks continue through Thursday. Trump for his part is the real revolutionary for the global order and the push for better deals found some hope though many see US hegemony as something to rebel against. The FT reported that "Brussels is considering talks on a tariff-cutting deal between the world's big car exporters to prevent an all-out trade war with the US." Markets today would also do well to look through the lenses of central bankers. The key questions for watching data ahead and digesting the PMI reports today rest on whether rate normalization can continue. The BOE August hike is very much in play and today’s PMI report will add to views for another 25bps hike. The ECB has a less obvious path as price pressures rise but growth continues to flatten. ECB chief economist Praet said he was confident inflation would continue accelerating towards ECB's target of just under 2% even after the end of its massive bond purchases – sug
gesting he is ready to taper still by end of year. All of which leaves today a bit less exciting than its day in history would suggest. The big winner in G10 FX today is SEK again. Riskbank Deputy Governor Cecilia Skingsley reiterated that October could see the central bank’s first hike in seven years. The battle for markets is easily controlled by central banks witness the PBOC and the CNY cap at 6.70 now. The issue is about what levels more important currencies cling to – like the EUR – where 1.17 caps of its own free-will and that opens the 1.15 level again. The real balancing of freedom for markets shows up in GBP where the politics of Brexit push GBP back down while the BOE promises of normalization keep it up. This is the currency that seems to capture the Independence Day mood best – waffling like the weather between sun and thunderstorms, glorious depending on your point of view.