EUR 9.28 For Business Accounts Only

The Morning Track same-trade

- The Morning Track - Same Trade? by Bob Savage
http://track.com/articles/the-morning-track-same-trade/

If we learned anything since November it’s that politics matter and that we all should celebrate the same idea – that politics will stoke reflation – and with central bankers still accommodative that means carry trades and selling volatility remain the winners along with equities. The Korean Presidential Election today is being watched for the Macron effect. The left-leaning winner isn’t assumed to have an easy time with no clear majority in the parliament. This like Macron means more gridlock risks. For all those in the center rather than the wings, failure to change will be the driver for more extreme change later. For Macron it means he has to reform labor, taxes and regulations to bring more growth and jobs to the economy in France. For Moon it means he has to break the Chaebols from control of the economy, crush the graft as a tool for access and find a way to make North Korea less of an issue even as the US Thaad makes it more complicated. The failure to fin
d solutions will only mean more trouble in the future. As for the news overnight – Australia retail sales missed badly dragging down growth outlook but Australia’s government took up central bank’s call for economic stimulus in its annual budget, with a A$75 billion infrastructure plan as its centerpiece. This means the deficit is 1.6% of GDP at A$29.4bn slightly worse than the A$28bn expected by government and market but worse for banks and traders, the government is calling for a A$7.4bn surplus in 2021 via higher taxes (with talk of Tobin tax). The point is that politics is the key driver today and it doesn’t sit well with the weaker data overnight as Japan wages miss, China car sales drop further, German IP lower along with Italian retail sales – throw in warnings from BOJ Kuroda on higher US rates hitting USD funding in emerging markets and you have a sense that the hope from Macron was best on the campaign trail rather than the reality of the present. This
begs the question of whether we are all safe still to be short volatility and long carry – with VIX with 9% handle at 20 year lows seeming at odds with the risk/rewards skews ahead. The markets are back to watching bonds for some confirmation that higher rates are needed and justified – just in time for the 3Y-10Y-30Y refunding in the US.