EUR 8.70 For Business Accounts Only

The Morning Track nasty-mix

- The Morning Track – Nasty Mix by Bob Savage
http://trackresearch.com/articles/the-morning-track-nasty-mix/

There is no party for markets today, no house-music to dance and celebrate, rather the heavy footsteps for the exit echo across the stage. Lower oil prices, a military take-over in Zimbabwe, further equity weakness in Asia with Japan Topix off 2% despite GDP the best since 2001 – all of this was a nasty mix for the European morning. Hump Day deliverd with no relief for the risk-off mood that started last week. There was a sharp contrast between the dovish Fed Evans and the hawkish ECB Hansson overnight but that really doesn’t explain the moves down. Oil and equities lower, bonds higher, USD lower – despite the hopes for US tax reform rising, despite the clearly easy money conditions and strong global growth, stronger 3Q earnings for companies. The House Republicans are pushing for a Thursday 5.30pm vote on tax reform and they seem confident for passage, setting course for a year-end deal with the Senate version. The data around the world did matter – Australian
wages hurt expectations for an RBA hike in 2018, while the UK labor market data saw the first drop in employment in over a year. Markets don’t like the Japan GDP as the slow wage gains mean less domestic spending and that puts the pressure on exports and FX to do the growth work – leaving markets back into the FX as the canary in the coal mine ahead of the key US data today CPI and retail sales. If the transitory factors behind inflation are lifted, then the data ahead will potentially turn the market mood. But if they show too much inflation, the fear factor maybe more tightening into a slowing global story – and rates won’t counterbalance equities. This is a nasty mix that plays on correlations and positions in a market prepared to gracefully soar into year-end. The driver of pain yesterday was oil, today it’s the USD, with the EUR leading with focus on 1.1880 then 1.1950 again