EUR 9.38 For Business Accounts Only

The Morning Track stripped-screws

- The Morning Track – Stripped Screws by Bob Savage
http://track.com/articles/the-morning-track-stripped-screws/

We have all done it – one turn too many on a screw and the head gets stripped leaving the screw stuck and likely out of place. Either you fix it with rubber bands or you drill it out. This is how markets feel today as the great “Trumpflation trade” pauses a bit and the rotation plays out of bonds into stocks, out of carry into fiscal stimulated growth. The USD is off its Friday highs, the stops in JPY and EUR have also been played out and the bond market looks sticky at its 10-year US rate resistance of 2.35%. The safe-haven trades of 2016 have turned over the weekend – perhaps because of the Donald tweeting or perhaps because we have all just had one turn too many as we prepare for a shortened week and a flash of news in the next 3 days. The news over the weekend may have given a bit of relief as well:
• The French Republicans favor Fillon who faces a Juppe run-off but the dropping out of Sarkozy is key. Fillon is seen as able to beat Le Pen of the National Front.
• Germany’s Merkel announces candidacy for 4th term as Chancellor. This was expected but making it official means the battle against anti-immigrations AfD begins with most hoping for another grand coalition of CDU and SPD.
• China’s Xi becomes the global advocate for free trade and investment – picking up where the US left off – the Chinese push over the weekend in Peru looks important for CNY trade settlement, capital flows.
• South Korea President Park risks impeachment Prosecutors said Park colluded with Choi, coercing local firms to “donate” $60mn for her personal gain.
• Russia and Syria continue to bomb Allepo – destroying last hospital. Syria rejected a UN truce agreement to grand Allepo and other rebel-held districts autonomy.
The key observation about the news is that it focuses on politics rather than economics. This is about mood more than substance, positions rather than fundamentals. The German 10Y Bund to US Bond spread was at 20-year wides and tightens by 5bps today. The Japan trade surplus missed expectations as exports were weaker than hoped, however, with the JPY at 110 most see this as old news as the Nikkei breaks higher and closes over the Fibonacci retracement opening 20,000 and higher. If only for the fact that the USD is widely seen as “overbought” with the formation today looking vulnerable to 108 before 111.75.