EUR 8.46 For Business Accounts Only

The Morning Track mud-2

- The Morning Track - Mud by Bob Savage
/articles/the-morning-track-mud-2/

After the rain comes mud. There is little that can be good about the hurricanes and typhoons that hit the world last week but the certainty of more to follow means only more trouble and more mud. One has to hope that there is no market mudslide to follow. There is nothing good about Mondays. The markets are stuck in the mud of US/China trade rhetoric and the feel-good hopes from last week are on hold.. Trump seems set to impose 10% tariffs on another $200bn in Chinese Goods today while China seems prepared to skip out on the talks with Mnuchin and in retaliation limiting more components to US supply. The mud is going to slow down any momentum buying and reduce the fear-of-missing-out buyers in shares globally. The news agenda overnight was light thanks to the Japan holiday and the obsession that US/China trade is the sole focus. However, the GBP and EUR rallies are still in play and key to assessing global risk. Here are the 3 key stories that mattered this morning:
• Brexit – GBP likely to wait for Thursday and the EU Summit in Salzburg. Over the weekend, the UK Times reported that the EU is preparing to accept a frictionless Irish border, while the FT has reported that EU Barnier is looking at options to "de-dramatize" the Irish border situation.
• Italian Budget – Headline watching continues. Corriere della Sera cited sources saying that FinMin Tria wants to keep the deficit under 1.6% of GDP next year. PM Conte, Tria, and the two deputy PMs are set to meet on Monday over the budget.
• Draghi and Economy – The do-over for last week’s news conference will be in play with his speeches this week. Reuters sources piece released late Friday noted that some ECB policymakers wanted Draghi to strike a more cautious tone on the economy in this week's policy message.
All of this puts the real action for risk in Europe into EUR/GBP with the chart suggesting the uptrend break at .8885 would have further legs back to 0.87. This maybe the trouble for those leaning on ECB hawkishness, UK politics and a weaker USD in general, but you need to see .8840 break to be excited about GBP moves being anything more than a short-squeeze. For the world, the GBP squeeze is emblematic of a larger playing out of normalization and lessening of politics dominating all other issues for investors.