EUR 9.38 For Business Accounts Only

The Morning Track packaged

- The Morning Track – Packaged by Bob Savage
http://track.com/articles/the-morning-track-packaged/

If you can’t go down, go up. Seems true for oil, equities and USD today. The sense that December is almost over seems perceptible today even as its just the 7th – as most expect something good from the ECB for risk and then little else for the rest of the month – an FOMC dovish hike, a BOJ content to wait out deflation, more Donald Tweets, less fear. If you look at the market reaction to the Italian “no” vote with banks higher, EUR stronger, we are in a repeat of “Brexit” where expectations for a central bank fix offsets any larger concerns about the real economy or further political uncertainty. Expectations for a new election in Italy shift from February to May given constitutional court ruling timing. Play now, pay later could be the other title for today as central bankers rush to bring forward demand. This expectation for the ECB maybe too optimistic with FX markets noting the high level of doubt in EUR implied overnight option volatility, which spi
kes to 24.35% today. Overnight the news highlights the risks of ignoring the rest of the month and betting monetary policy over politics – call this the packaged response risk.
o India’s RBI surprised market by leaving rates on hold
o Australian GDP 3Q contracts –0.5% q/q – worst since 2008
o Japan December Reuters Tankan Manufacturers 16 from 14 – 16-month highs -led by steel and transport
o UK and German industrial production reports both miss expectations
o China FX reserves drop $69.1bn – most since January
o The Bank of Canada today is widely expected to be on hold
The biggest mover in FX isn’t EUR or CNY or AUD but GBP as the real economy hits limits and that maybe the central lesson about packaging – what is in the box matters as much as the wrapping. GBP weakness today is an unwind of the soft Brexit hopes as it mixes with the grim reality that the year isn’t over, that time grinds on despite the hopes for a holiday. Risk is that 1.2460 breaks and we return to a less hopeful world.