EUR 8.84 For Business Accounts Only

The Morning Track politcs

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

Blame Politics for the risk-off mood today? In Aristotle’s Politics, he describes the role that politics and the political community must play in supporting the virtuous life of the citizens. One must wonder if we have learned anything in the last 2500 years as global politics seem more focused on fear than virtue. The elections Sunday brought the expected first round victory for France’s new political centrist REM party, but the loss of the old centrist parties Republicans and Socialists shouldn’t be ignored. The contrast to the 5-Star anti-EU party in local Italian elections is notable – as they fail to make run-offs in all the major cities but remain tied at 30% in polls to the center-left PD. The drama of the UK hung parliament continues as PM May faces the Tory back-bench today and still is in talks with the Irish DUP for a coalition tomorrow. As one former Chancellor Osborne quipped, it’s a question of “when, not if” for her calling her a “dead wo
man walking.” Germany’s Merkel sees no obstacles to pushing forward with “Brexit” talks June 19th even as the UK position seems unclear on what hard or soft stances should be. Spain’s Catalonia set a October 1 vote for secession – all of which leads to the devolution of the weak coalition government in Madrid. In the US, Puerto Rico voted Sunday to become the 51st state in the Union – the vote was non-binding and just 23% turned out. What’s not clear is whether the Federal Government will approve of the vote. All these stories matter to markets but not as much as the role of central bankers in providing easy money and expansion of their balance sheet to buy bonds. The key question will be how much of a reaction function the FOMC and others have to financial conditions versus the actual stock market performance. We will be testing the S&P500 put protection of the Yellen Fed. The US has 5% lower USD, a stock market just 0.5% from its record, up over 8% o
n the year, higher home prices and mortgage rates below the lows of the year. Throw in that we are below the usual estimate for NAIRU at 5% and you have the makings for a rate hike. The reaction function of other central bankers will be key to watch this week as well with the BOJ, BOE, SNB and others in EM like Turkey – all important to the balancing of how monetary policy fits with fiscal policy in leading the political debates of the present battle for populism, deficit spending, wealth redistribution and more. What this means for trading markets is uncertainty in politics and faith in bankers leaving risk-on or off the key theme until proven otherwise – perhaps Wednesday. Today is one of those uncomfortable days when bonds and stocks both are losing. The place where politics matter most is the UK right now and GBP isn’t yet telling us it matters much – leaving 1.2640 support against 1.30 breakout risks.