EUR 8.46 For Business Accounts Only

The Morning Track red-alert

- The Morning Track – Red Alert by Bob Savage
/articles/the-morning-track-red-alert/

When the red light flips on the car dashboard you are supposed to pay attention and get the vehicle checked out. Similarly, when the leader of the global recovery stalls, it’s a red alert for all risk position across assets – note China equity indices fell 4% last night. The reversal of equities this week culminated today with the China trade surplus shrinking, its exports falling over 20% and imports dropping as well. Talk that the US/China trade deal will take more time added to the weight of the report driving down the China share market for the first time in 5 days and hurting markets globally. The other story was that China is back to monitoring grey-market margins and is punishing some lenders for channeling money into stocks. Things got worse with Europe as German factory orders added to the gloom that ECB Draghi already spread yesterday. The reaction of markets to the ECB TLTRO was disappointing even as the central bank is the first to act to respond to global
growth weakness. The fear that monetary policy is out of bullets and that fiscal is the only gun left working remains. This brings the market back to the US and its divergent growth hopes putting the jobs release again into the spotlight. While few would argue US jobs are anything but a lagging indicator – they still reflect the underlying economy and so the risk-off mood may temper if growth holds – i.e. if jobs are above 150,000, wages are steady to higher and job participation rises. The markets are waiting to see the FOMC reaction function to the data and to the ECB and foreign growth doubts. This puts the barometer for risk shifts back to the USD, which is watching 98 for a confirmation of bigger divergence and more confusion. Safe havens like JPY and Gold are back bid and may be also going higher with the USD after 8.31 am.