EUR 9.28 For Business Accounts Only

The Morning Track processing

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

How investors process information and turn that into intelligent trading makes the market work when there is more noise than signal, profits turn to losses. Understanding risk-off moods in the post great-recession world starts with understanding liquidity responses from central bankers. Easy money has been the heart of the rally for risky assets from 2009. But this shifted in November with the US election as fiscal policy began to replace a tired out Fed searching for normal. The 2016 lessons added the sell-the-rumor of trouble and buy-fact twist to trading as every volatile event has been sold before it happens and bought after – with the upcoming Xi/Trump meetings seen in that light. Between the political reality of tax reform “taking longer than healthcare overhaul,” according to House Speaker Ryan yesterday, and the FOMC minutes talking about reducing the balance sheet later this year but with no details worked out, coupled with NY Fed Dudley’s statement last
week that the Fed may decide to take a “little pause” in raising rates when starts to normalize its balance sheet as well – you get US yields to drop again despite a better ADP jobs report and despite evidence that the US economy on track for 2% plus growth with full employment and near target inflation. This started a more pronounced risk-off move. The world balancing act is perfect – as many see the same old market as 2016 in 2017 as long as Trump policies fail to come to fruition quickly.

This sets the state for the price action overnight with the safe-havens of bonds, JPY and gold being the winners early and reversing later. The RBI was the big-surprise as it hikes 25bps in its floor – reversing its easing bias – in contrast to ECB Draghi coming in second as he adds that there is no need to change ECB rate guidance – unwinding some of the Weidmann sting from yesterday on early rate moves. Then the Czech central bank removes its currency cap – ending 3 ½ year of deflation fighting – something most expected to happen last week – but surprises with an extraordinary meeting and move today. If you mix this all together you get divergence and confusion. The markets are not convinced about inflation or deflation leaving ranges more than trends in charge except in places where central banks have the courage to move.