EUR 8.46 For Business Accounts Only

The Morning Track no-5

- The Morning Track - No. 5 by Bob Savage
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Numerology at work today, it’s the 4th day of the work week, but the 5th day of the full week, and the 5th day in a row that markets are uncorrelated with more confusion over drivers and risk factors than consensus. Change is the power of 5 and its clearly in play today. The number 5 shows up in the TRY break of that level today. It shows up in the days of TWD weakness and in the days of PBOC skipping open market operations to add liquidity despite promises for easy money. It’s also the 5-week high for Italian BTP 10-year at 2.91% as politics there continue to worry. The 5th iteration of the US trade tariff talk hit overnight - “China has made full preparation for the U.S. threats to escalate the trade war, and will have to retaliate to defend national pride and the people’s interests,” China’s Ministry of Commerce said in a statement on its website. The biggest confusions in FX is whether USD strength is good or bad. Real rates going up because of real growt
h is supportive. This will be tested in the case of the Bank of England today – the unreliable boyfriend to UK May and the economy. The BOE 25bps hike to 0.75% was expected, the 9-0 vote also but seen as hawkish and the new R* 0-1% range is seen as suggesting less room to wait on more rate hike as it implies 2.25% nominal on GDP while forecasts for inflation is up 0.1% to 2.2% for 3Q2019 and 2.1% for 3Q2020, forecasts for GDP are flat at 1.4% in 2Q2018 and 1.8% in 2019. What seems most interesting today is the EUR and GBP moves lower despite the rate hike and the FOMC not surprising yesterday (though it was hawkish and clear for September rate hikes). The USD gains overnight are important and suggest a higher USD index is bearish for the risk mood ahead. What seems obvious is that BOE hikes are not sufficient. GBP below 1.36 and 1.3250 opens 1.2750 and lower.