EUR 9.12 For Business Accounts Only

The Morning Track premium

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

Most people like to buy the best they can afford whether it’s clothing or food. When it comes to insurance or FX it’s usually the opposite, the cheapest product wins. The curve of quality to price doesn’t always work. Overnight the risk premium for equities in Asia went up as Fed rate hikes seem inevitable while in Europe they went down as risk premiums for the French election reversed. The idea floating of Fillon dropping out for Juppe to replace him is one factor, then the French Odoxa Poll shows Macron beating Le Pen in first round – and that drives OAT/Bund spreads ever tighter – which drives the rest of the periphery. Relief in politics trumps fear of central bankers still. The biggest economic news was in the data with Service PMI reports not quite as expected but good enough to support the relation trade in Europe while even a positive Core CPI print in Japan couldn’t do the same. The drop in confidence in Asia is worth noting with the Chinese about
to start a key set of meetings on policy with a bunch of newly appointed key people in finance. But that isn’t the fear factor that drives Asia – rather there is a growing doubt that US growth will matter, that China growth will help and that Japan reflation will work. The political battles between China and South Korea over the US missile shield are a case to consider – as tourism from China to Korea is curtailed. Trump talking up the need for a 12-carrier US Navy adds to the China South Sea worries. Nothing is simple when prices look expensive to the reality and hope seems less strategic than fear as the emotion driving positioning. When it comes to the day – much has been made about Yellen and Fischer speaking today all but confirming a March 15 hike. That isn’t likely to be so clear after they speak as we still have the jobs report and a bunch of other risks like the Dutch election and ECB meeting to get over before then. The USD Index looks set for hig
her but for this doubt with the Fed even as the US Bond yields seem ready for 2.55% and higher in 10Y. On the day, we will continue to play political premiums over central bankers until proven wrong – that means more Trump problems with the cabinet or less Congressional action on taxes, ACA or the like means trouble.