EUR 8.70 For Business Accounts Only

The Morning Track near-miss-3

- The Morning Track –Near Miss by Bob Savage
http://trackresearch.com/articles/the-morning-track-near-miss-3/

So breaking news – yawn – the US government shutdown ended before it started as the US House passes a new budget raising spending by $300bn. Low Inflation and High Growth mix with fiscal deficits and the uncertainty of global central bank policy shifting from very accommodative to something else. This leaves many waiting for the technical all-clear siren, whether it’s the 10% correction, some significant positive news, or just the end of the week – it is Friday after all – but clearly, politics are insufficient. We have had a near-miss experience in markets where the selling never quite got the “crisis” capitulation moment, but instead bleeds out almost daily, as if the equity market is just collateral damage to the more persistent blast back from higher rates. The FX market has been in the bunker while the commodity world was on scouting out trouble and pays for it this week. Markets are bouncing back into early New York trading with risk-on moods coming
back thanks to no one factor but the confluence of time, value and hope. Trading on hope is the weakest of strategies but one that seems to be the best after the near-misses described above. The macro story line for the week is developing accordingly – US equities were scared that US rates would hurt more and lead to a larger deleveraging of the market. After this was happened, the reality for rates is that higher rates – say US 10Y at 2.95% then 3.10% then 3.25% - all are fine as long as US growth matches that bubble up along with corporate earnings. The chart that explains the week is the 10Y as its sharp swings from 2.885% to 2.65% and back are in play along with the idea that bonds going up won’t matter as long as growth does as well.

Overnight this story line was proved out in the UK where the growth isn’t going up but rates are – so the GBP gives back the BOE gains and the Gilts rally. Throw in the UK Brexit talk noise _ EU Barnier threats about no transition deal – and you have the day’s volatility in FX.