EUR 9.28 For Business Accounts Only

The Morning Track old-rules

- The Morning Track – Old Rules by Bob Savage
http://track.com/articles/the-morning-track-old-rules/

Month end cash squeezes are in play in Japan and China and they, maybe along with the rising growth stories in Europe - as evident from better PMI flash reports - pointing the short-term direction of the USD regardless of any US House vote on healthcare reform. Then again, we are in the midst of a larger theme of “normalization” for monetary policy where rates begin to matter again as inflation fear outstrips deflation. The balance of debt to growth begins to play a significant role again with leverage back in play and with central bankers looking confused as to how to disentangle from being real lenders rather than care-takers of the banks. The ECB and BOJ are on the front lines with their extraordinary policy at odds with FOMC rate hikes – but everyone is still far from “normal” easily defined as real rates being flat rather than negative. So the old rules about growth, business cycle stages and monetary policy differences measured by real rates all seem to b
e ready to return to modeling the next set of market moves with politics seen as the exciting noise maker in an otherwise rather glum party of economists and technocrats leading developing nations. The excitement today maybe in the flows in emerging markets with the central bank of Russia cutting its key rate 25bps to 9.75% with an economic revival and lower inflation allowing for some upbeat outlooks for investors. All told the focus beyond politics is on carry and how to survive in markets that wait for bigger things to happen – and that puts the race of the low yielders into focus with EUR/JPY the best guide to risk appetite for stocks, bonds and EM. EUR/JPY needs to close over 120 to be safe.