EUR 9.38 For Business Accounts Only

The Morning Track narratives

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

We tell stories in our vain attempt to make sense of the world. In markets telling stories defines the paradigm and provides the courage to invest. Every stock has a story, every trader believes in a fairy tale, every loser blames his book. The FOMC hikes and lifts it’s rate path higher, bonds sell-off, USD rallies, equities stutter – but not everywhere as foreign shares watch exporters and banks flourish with a steeper curve. This is the story from yesterday, leaving the next page to the other central banks to write – and that is the focus – as the divergence between the US and the rest of the world. The subplot in the US is about how higher rates hit the economy – with mortgage backed securities suffering from convexity selling and with the stronger USD hitting at exporter profits. The overnight decisions matter but only in what they say not in their inaction– Bank of Indonesia, Bank of Korea, SNB, Norges Bank and BOE all left policy unchanged. The path of
inflation remains the key focus with few tracing the same view as the FOMC – and that is the conflicting story. It’s a picture where FX seems to matter more than usual as the nations where a weak currency helps the central bank – like the BOJ and ECB – sees better shares and doesn’t care about bonds given ongoing QE. The tough places are in emerging markets where weaker FX brings real inflation and tough choices. The US dollar index is trading towards the 2003 highs of 103.20 with 104 the next line after that – with the JPY and EUR weakness leading the move it leaves the emerging markets caught with less room to do nothing. Perhaps this makes the Mexican rate decision that much more interesting today or perhaps we should be thinking about the growth paths for 2017 both at home and abroad.