EUR 8.46 For Business Accounts Only

The Morning Track no-weapons

- The Morning Track – No Weapons by Bob Savage
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The news from Asia overnight sets up today to continue the bounce back in risk mood. First, the Moon-Kim Korea summit produces another deal on denuclearization and peace. Second Chinese Premier Li vows not to use the CNY as a weapon in trade to boost exports and third, the BOJ stuck to its long-term promises of easy money. While this lifted Asia shares which continued the S&P500 bounce, the European session had two stories that mattered and stalled the rally – as Italy sees its BTP rally end on rumors that the 5-Star Leader pushed for more spending in budget – this was later denied but rates are higher in periphery. The second surprise came from the UK where CPI zoomed higher to 2.7% and that shifted up expectations for a BOE hike again. The GBP has already squeezed, a bit like the EUR, and so the heavy lifting of markets pivots to fixed income today. The break out of US 10-year rates at 3.05% matters – with the Chinese selling of US treasuries as show from the TIC
report yesterday evening one factor, but the budget deficit and better Emerging Markets the other two. Emerging Markets are bouncing today with TRY and ZAR both up over 1.5% driving capital flows as China seems to be winning the PR war on trade. No weapons in FX means that worries bleed elsewhere – with the correlation of FX to stocks in play in EM but not in developed markets as much. Focus today in the US will be on housing starts and the sensitivity of rates to growth.