EUR 8.70 For Business Accounts Only

The Morning Track make-hay

- The Morning Track – Make Hay by Bob Savage
http://trackresearch.com/articles/the-morning-track-make-hay/

Investors know to make hay when the sun shines but do banks and businesses? That seems to be the key focus of central bankers as they cajole the financial community to take on structural reforms while rates are low and the global economy strong. There is a sense that the good times are nearing blistering levels where “irrational exuberance” will be the next tagline from the FOMC. The perfect weather for risk today started yesterday. However, this has the seeds of a storm in the making.
The progress on Brexit talks means the Bank of England is behind the curve for hikes as less negative outcomes means less recession risks in 2019. The UK Telegraph article drove GBP higher yesterday in New York as it suggested UK PM May was prepared for a GBP45-55bn divorce bill from the EU as a precursor to such talks on trade. The fact that the Irish government remains intact after the Deputy PM resigned also helps the process. The fact that another North Korean missile test was ignored – even as it was at a steeper trajectory indicating a further distance capability, basically anywhere in the US – all that adds to the sense that the list of real worries into the month-end just isn’t material enough. Instead we see Bitcoin over $10,000, stocks higher, bonds lower and commodities mixed. The USD holds its ground but losses against GBP highlight the real story is about growth and rates everywhere. The EUR/SEK again proves that point as it nudges higher with Sweden
3Q GDP missing at 2.9% rather than 3.5% expected. Other data from Japan on retail sales dropping for the first time in 12 months or French consumption missing expectations, or UK mortgage approvals dropping or EU economic sentiment rising but not as much as expected – all that was pushed aside by the German CPI coming in slightly higher and so adding to rate hike views into 2019. Rates are back in the drivers seat and that leaves the shape of the US curve and the FOMC speakers, 3Q GDP revision and Fed Beige book in play to bring further volatility (should 2.36% break in 10Y yields).