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The Morning Track superlatives

- The Morning Track – Superlatives by Bob Savage
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There is nothing ordinary about today. The calm before the storm is the siren call for risk taking. One may come into the office and look at the price action and assume nothing has changed and the world is stuck despite the pictures of black holes from outer space, or the ECB dovish tilt or the FOMC stoic patience or US/China accord on trade deal enforcement or the EU/UK flexible Brexit delay until October 31. Markets are calm but that doesn’t mean the list of events doesn’t matter – consider the other headlines: Israel re-elects Netanyahu. Australia PM Morrison sets election date for May 18th despite lagging in polls behind Labor Party’s Shorten. Wikileaks founder Assange has been arrested in London upon leaving the Ecuador embassy there. Greece plans to join the 16+1 group of China and eastern European nations despite the EU commission branding China as a “systemic rival.” All of these are interesting but hardly immediately market moving – while the superl
atives on the otherwise static day merit some attention:
• The largest democratic election in the world starts today in India. INR is perched around 69, stuck between hopes for more transformational policy from Modi against the grim realities of inflation.
• The lowest level in EUR/USD volatility returns with 1-month implied at 4.45% – this is back to August 2014 historic low level. EUR/GBP volatility is 6.3% below Brexit levels.
• The Hong Kong stock market overtakes Japan with market cap of $5.78 trn on Wednesday but loses that place on Thursday – behind US and China.
• China overnight rates (SHIBOR) jump 45.7bps to 2.735% - back to March 19 highs and above US rates for the first time since March. The PBOC changed its language on liquidity levels into the expected mid-month tax squeeze and maturing MLF next week.
• Another bomb cyclone storm in the US Midwest is setting snow fall records. More than 2 ½ feet of snow is set to fall from South Dakota to Minnesota. Disruption to travel and to crops / livestock is expected.
The overall calm is superlative in itself and it makes the lack of moves in Fixed Income and FX more likely to help equities than hurt them. Risk is tenderly turning bid again in Europe and US markets are geared up for more Fed speakers, more on PPI as compared to CPI – with a feedback to corporate profitability and the ongoing saga about US trade policy with EU and Japan next up should China be near done. This puts the USD as the dull risk barometer for the day still. 96.00-97.65 are the alarm bells for any change.