EUR 9.06 For Business Accounts Only

The Morning Track leading

- The Morning Track - Leading by Bob Savage
http://track.com/articles/the-morning-track-leading/

When you are dancing someone has to lead or toes are mangled and even worse. The markets are no different with the beat of money from central bankers still echoing in investors’ heads driving up assets with the horn of better 4Q earnings restarting the frenetic pace of the tango between equities and bonds. Foreign Exchange used to be important until yesterday – but its been dropped from the dance care - when the milestone breach of DJIA 20k changed the perception about what really matters. The Trump trade has been working only there while both bonds and the USD have seen wicked retracements. The recovery of both back to trend was an equity story first. When equities lead, investors are buying into a 25% volatility but when FX leads its slower and more grinding one – this all matters but perhaps not yet. With much of the world preparing for holiday if not already drinking the “cool-aid” many think we are in a breakout mode with the momentum of the dance suffici
ent to set ever higher equity prices. That was the case overnight and most of the story. UK GDP was slightly better but 44% of the report is real and the rest estimated. More problematic is the UK CBI retail sales report – with a sharp drop blamed on food prices. Inflation matters and until we get it over target instead of in the middle no one is going to believe in the bigger global recovery. Germany confidence continues apace and yet the price action of EU bonds is telling another story for the periphery. Election risks in the Netherlands, France and now thanks to yesterday’s court ruling, likely Italy – those will be the leading worries for February. Until then we have month-end trading and the joy of waiting for the clock to change and the Fire Rooster to rule. So there are two charts competing neither is FX related today – the historic one for the DJIA – perhaps yesterday’s news and today’s potential 10Y rate break out with 2.55% looking key.