EUR 9.06 For Business Accounts Only

The Morning Track rinse-and-repeat

- The Morning Track - Rinse and Repeat by Bob Savage
http://track.com/articles/the-morning-track-rinse-and-repeat/

Welcome to Ground Hog’s Day – a rather arcane custom for predicting weather based on whether a burrowing animal, when forced to the outside world, sees its shadow, all in the middle of winter. What can we divine for markets from this custom? Lots – First is the over reliance on bad science – like traders leaning on bad correlations yesterday with US ADP and ISM suggesting a FOMC that should be ready to hike and an economy nearly at capacity. Correlation isn’t causality. Second, we learned that Trump tweets like that of a Ground Hog matter more than anything else. Today’s is about Iran. Yesterday was about the USD. There is an unpredictable manner to trading inspired by Trump that just won’t go away. The aftermath on US politics is yet to be seen with more riots – this time in California at Berkley – and of course, higher oil prices. Third, we learned that determining if something is good or bad requires taking something out of its element – like h
aving Trump and Australian PM Turnbull speak today. Normal rules don’t apply; assumptions of long-standing allegiances and common interests fall apart. Turnbull would have been better prepared to act like UK PM May than German Chancellor Merkel. Point is that today remains stuck like the movie Ground Hogs Day in a repeating loop for news as political noises beat out anything else. Even worse markets are stuck in ranges where we rinse and repeat levels like a bad shampoo commercial. The rumor du jour is evidence – as French OATs rally on hope that Fillon may soon give up his Presidential run –as more revelations about his wife and public money come out. This leaves Macron the main challenge to Le Pen. The net result is risk off after a one day respite from the FOMC. The USD is lower, rates are mixed to higher, stocks are wobbly. The big news event is expected to be a non-event with the Bank of England stuck between Brexit fears and rampant inflation risks. The risk
for trading markets where politics and central banks matter more than economics is that the FX gets lost – and so GBP is vulnerable with a push to 1.28 looking overdone and 1.22-1.25 more where May and Carney would like it.