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The Morning Track red-flags

- The Morning Track – Red Flags by Bob Savage
http://trackresearch.com/articles/the-morning-track-red-flags/

When safe-havens like JPY, CHF, gold and US bonds move, red flags over risk are raised. This is a red-flag day and one that doesn’t seem ready to do the usual roll-over to “buy-the-dip” that we have all become trained to expect. The difference is the increase in volatility in fixed income and FX overwhelms equities – crisis pricing begets a different response – as fear beats greed and hopes are dashed. The hope over the weekend was that Italy would fix its political mess, start a new populist government and follow the Greek model to comply to EU rules. Instead we get a threat of early elections, the 5-Star Movement majority calling for peaceful protests and a blow up of Italian debt, which hits Spain, that suffers its own crisis with PM Rajoy facing a Friday vote of no confidence, and drives the EUR to 10-month lows and leaves the EM world spinning lower. Overnight, the good news that the US deferred new North Korea sanctions didn’t matter to offset the Italy
fears. Even a North Korean envoy flying to the US didn’t move Asia markets. The oil market is also holding the Friday losses – WTI at 6-week lows - as Russia and Saudi appear ready to open their production taps and to fight with OPEC for a production increase overall to offset Iran sanctions and Venezuela chaos. The Turkish central bank yesterday promised to simplify its rate system suggesting its back to independence from government, which helped the TRY but today that evaporates with Italy. The only thing that seems to matter now is the contagion measurement and how bonds, FX, stocks trade together in Europe moving everyone and everything else. This is not usually something that lasts long as the list of positives ignored above matters, but we are all EUR traders here and 1.18 seem far away compared to 1.13 again given the present situation.