EUR 8.70 For Business Accounts Only

The Morning Track policy-races

- The Morning Track – Policy Races by Bob Savage
http://trackresearch.com/articles/the-morning-track-policy-races/

The tortoise and the hare seems to be the proverb of the day as Fed gradualism proves to be the hare moment for the USD while the ECB and now the Riksbank leap ahead with promises of winning the race to normal policy like turtles. The Riksbank Skingsley speech reiterated promises that Sweden will hike before the ECB and SEK responds accordingly, but flip-flops as Dec CPI is below 1.8% expected and core held dips to 1.9% as expected. The EUR is at 3-year highs already thanks to yesterday’s ECB minutes that explicitly talk about the end of QE. Throw in that the German coalition talks appear to have come up with another Merkel deal and you get a break of 1.21 en route to 1.2250. Markets appear to have forgotten the US CPI risks today after the weaker PPI leaves many expecting just more of the same in the US. The biggest surprise overnight and perhaps the one that matters most in the medium term is the weakness in China imports. This led to lower commodities and puts the de
leveraging process in China back in focus – as the M2 hits a new record low there as well. Markets are beginning to sniff out that rate hikes in a consumer-leveraged world might not be so smart for growth. The data from Japan on EcoWatchers also fell highlighting higher CPI hurting while in Europe, there isn’t any sign of a big uptrend yet in CPI (witness Spain and France final HICP). Waiting today for a change in data to change the speed of policy races is going to be a bit lost given the other focus on equities which remain the hare. For FX, the risk games remain clustered in a JPY gain to 110.50 but the EUR rules the headlines with 1.2250 targets after the breakout from 1.2092 the Sep 8 2017 highs.