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The Morning Track predictability

- The Morning Track - Predictability by Bob Savage
http://track.com/articles/the-morning-track-predictability/

Uncertainty is on the rise, forecasts are now in doubt, markets are reflecting the worry by buying safe-havens from JPY to Gold to bonds. All of this has moderated in Europe but not sufficiently to call it “all-clear.” Part of this is the timing problem – known unknown fears usually have a time-line but we live in an instantaneous world of digital global coordination – hence the spike this morning for safe havens in Europe from an errant Tweet about another North Korean missile launch. This is more than a weather problem. Unpredictability now isn’t because of monetary policy, as the Polish central bank does nothing, the Bank of Canada is expected to talk hawkishly and wait, the Brazil COPOM cut 1% and celebrates. Perhaps some of the blame still rests with the FOMC as Brainard, Kaplan and Kashari yesterday all sounded more dovish and the hike in December remains in doubt driving down the USD further. The ECB also has some role to play as the ECB is still expected t
o talk about QE tapering even if Draghi plays dovish. The most unpredictable worry bothering markets is in the US response to North Korea, which still isn’t clear. The underlying threat is that the US puts more pressure on China to cut trade – perhaps oil exports – threatening regime change in the hermit kingdom. Overnight, the Chinese military held its 3rd exercise in a month in Bohai Bay simulating the takedown of “incoming missiles.” The drills show – as one military expert reported to the SCMP - China is prepared and able to stop any power threatening stability in the region. This falls back to the US as the response so far to North Korean provocations – its 6th nuclear test, more ICBM missile launches - all fly in the face of UN resolutions and threaten US allies. The other uncertainty is weather as the worst Atlantic Hurricane in history moves to Puerto Rico and then Florida threatening more energy production and food supply not to mention the insuranc
e industry along with the US government as FEMA is out of money. The threat of a US government shutdown isn’t zero and the Treasury Bill auctions yesterday reflect that doubt. Politics in the US remain the third rail for trouble in markets and the USD today. The safe-haven to watch into this mess remains gold as its momentum and trend show $1375 is the next target and $1310 is the upside base.