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The Morning Track regime-shift

- The Morning Track – Regime Shift by Bob Savage
http://track.com/articles/the-morning-track-regime-shift/

The word “inauguration” comes from French via Latin literally meaning “installment under good omens.” In ancient times, this was the ceremony that brought the sanction of the gods to something decreed by man. An augur was a priest who used natural signs – particularly of birds – to portend the divine approval of potential actions. Odd that we use this word every four years in the United States, odder still that it matters as much now but for the fact that most see the inauguration of a New President as a regime-shift, a moment when all previous assumptions about policy and the world have to be reconsidered. The election of Trump in the US, like Brexit in the UK, is a change in the course of globalization and the push for national advantage over collective gain. This is the battle of stability over unfettered capitalism where politics push for growth and welcome inflation after 7 years of QE and negative real rates. The debate is one about the role of gover
nment, the role of trade and the value of money. Overnight and in the day ahead this clash will be come even more clear as the market listened to FOMC Chair Yellen push for her apolitical discretion in monetary policy while China pushed for Trump to act more Presidential and see China as more a partner. Overnight, the focus was on China, which provided better-than-expected results, and saw the PBOC make a “temporary” reserve ratio cut to add funding for the New Year Holiday. This follows the CNY 1.13trn additional liquidity they added this week. Policy whether fiscal or monetary matters most to markets now and we have seen a regime shift from the asset inflation linked to QE world of the last 7 years. This comes out most clearly in the chart of US rates – and that is the key driver and risk for the day as we break out with Yellen and maybe extend with Trump into a new brave world.