EUR 8.90 For Business Accounts Only

The Morning Track playing-for-time

- The Morning Track - Playing for Time by Bob Savage
http://track.com/articles/the-morning-track-playing-for-time/

There is a sense of playing for time in the geopolitical headlines today and with that markets rally as the status quo of brings back the search for yield and the focus on central bankers rather than politics and the threat of war. Japan saw better retail sales – helping spur rebound in shares and a weaker JPY overnight. The swan song from RBNZ Wheeler didn’t’ add much but underscored the wish for a weaker NZD and the power of central bankers. The Australian 2Q construction surprised to the upside lifting 2Q GDP revision expectations, but played down as a one-off due to LNG platform building – with residential building slowing – and with dwelling approvals lower. The Swiss KoF was weaker suggesting the CHF weakness isn’t making any difference. The flash inflation from Germany and Spain both on the higher end of things helping add to ECB taper thinking and the selling of EU bonds today as fear recedes in equities. The EU economic sentiment is also robust and tha
t adds to views that the economy can handle something less from central bankers. The UK saw a jump in mortgages but lower credit demand and creation – suggesting the BOE maybe focusing next on level of yields in Gilts rather than the normalization of the overnight. All this doesn’t mean that politics don’t matter – but they are having a bit less impact – as economics and momentum chasing returns to a summer market. If you wanted to pick on politics as the fear monger – beyond the UN Security Council condemnation of North Korea and Trump’s “all options are open” comments – the issue of North Korea has proved to be a slow-moving train wreck with measured responses from the US, Japan and China driving the “buy-every-dip” thinking for investors. The new focus today is on Europe particularly the UK with Brexit still front and center. We have Norway elections, then Germany in the month ahead and those matter but the headlines are about Brexit. The U.K. h
as asked the EU for more time as an October deadline to secure an agreement looks increasingly unlikely. Prime Minister Theresa May offers a financial payment as part of a wider package in return for a transition period, according to the Times of London. She also noted “no deal is better than a bad deal.” There are lots of articles in the UK press warning about Brexit and the thinking of a much weaker GBP from the Telegraph to the WSJ – which sees barren shop shelves looming. The trick for PM May is in replacing the nation’s EU dependency with something else – US and Japan trade deals being the top priority, expect much will depend on her visit to Japan. This puts the race of the USD to the bottom and the hope for parity for the GBP against the USD into perspective – and perhaps as the central FX story for today even as the EUR retreats back from 1.20 and the JPY loses back over 110.