EUR 9.28 For Business Accounts Only

The Morning Track reduction-fallacy

- The Morning Track – Reduction Fallacy by Bob Savage
http://track.com/articles/the-morning-track-reduction-fallacy/

Proving cause and effect in the murky world of politics and economics is more art than science and it always sounds better in Italian. The markets are suffering causal oversimplification and living a reduction fallacy today. The reaction the US Friday health-care bill failure has been uniform from Asia to Europe with risk-off as doubts about fiscal policy in the US driving global growth dominates. The USD is lower as US rates reverse with 2.30% 10Y back in play. The commodity complex is lower as global demand and OPEC extensions are debated. Equities are lower as tax reform hopes are put into question. The unwinding of the Trump trade is almost complete but the technical damage done still can have large aftershocks. Overall, the drop in US confidence to growth above trend puts the entire “goldilocks moment” for the rest of the world at risk – as debt deflation returns as a concern. This is not good for the world but rather for safe-havens with JPY, CHF, Gold and h
igh-quality bonds in favor. The USD has 3 breakdowns underway – first in JPY at 110 – trading at 4 month highs, second in EUR with the break of 1.0830 opening 1.0995 with the 200-day at 1.0882 next resistance and third in GBP with the break of 1.2580 opening 1.2704 200-day test. Put into the US dollar index terms the break of 99.13 opens risks for 94.50 with 200-day at 98.66 next. But here is the important point – the drop in the USD has been going on for 2 weeks well before the health-care bill repeal and replace failure. Some are suggesting that this reflects a slowing US economy (read Ambrose Evans-Pritchard in the Telegraph), others see it as reflecting the end of global easing (like Gavyn Davies), others blame the drop in oil reflecting the new role it plays in USD value – there maybe a thousand reasons for the present USD weakness. The reversal of the USD uptrend has broader implications for global investment flows. The biggest problem is for emerging market
s – witness the reversal in ZAR as lower commodity prices, lower global growth and politics drive ZAR off 1.7% to 12.73 early today. South African President Zuma ordered FinMin Gordhan back home ending his investor road show in the US and UK early. The point is that the USD moves aren’t just about the EUR and JPY and that the moves to 98.66 maybe an overshoot in a world filled with uncertainty.