EUR 8.84 For Business Accounts Only

The Morning Track next-2

- The Morning Track – Next? by Bob Savage
http://track.com/articles/the-morning-track-next-2/

Next on the Agenda, markets are ringing the bell for more fear with a weaker USD, lower rates, as the US Senate moves to the next agenda item, giving up on healthcare repeal and replace for now as 2 more Republican Senators pull their support. The budget and tax reform are likely the next focus with the debt ceiling in the US looming. Politics matter still but perhaps not yet as much as central bankers. Overnight, there was also a shift on the agenda as the RBA minutes sent rates there higher. It’s not what they said but how they thought about it – rates at 1.5% are 2% away from their “normal” rate and so AUD went up over 1.7%. Similarly, we saw the same thinking about the EUR almost a month ago – and that will be key for Draghi to discuss Thursday after the ECB meeting. Where the “normal” is matters. USD appears to think 1.25% is normal and so the problem for the USD which is the primary mover on the day – outstripping bonds and equities. This all sho
ws that central bankers remain front and center in moving markets. The Swedish Riksbank minutes were a bit more dovish than the RBA but again highlighted the urge to move beyond extraordinary easy policy with a keen eye on the ECB. The rub to the whole story is the economic data. It wasn’t quite as kind to the bankers – with New Zealand CPI lower than expected and UK CPI similarly missing the mark. German ZEW also softer despite the ebullience of confidence from politicians and bankers. With low inflation, the talk of normalization will be difficult for the markets to fully believe – putting credibility at risk. This maybe the heart of why the USD is weak as few see the FOMC finished from hiking or shrinking their balance sheet, but many fear that further actions will kill the future growth and strangle this extended recovery. The USD is on the ropes but the downtrend has little support until 94.