EUR 8.50 For Business Accounts Only

The Morning Track talk-to-action

- The Morning Track – Talk to Action by Bob Savage
http://track.com/articles/the-morning-track-talk-to-action/

There is no power in the market greater than the public purse. Politics returned as the driver overnight – US Senate passage of a budget opens the path towards US tax reform. This set the US bond market sharply lower as most see it increasing the US budget deficit. UK May speech to EU leaders opened further path to real EU talks – but it will come at a price with Ireland, EU payments and citizenship issues all still in play - both stories help boost outlooks for better times ahead and higher equities follow but both events also require talk to translate to action. In the case of the US, tax reform has many other votes needed to meet a Thanksgiving deadline. For UK May, the EU wants to see the money – the divorce bill remains contentious and over E20bn. If yesterday was about fear – whether NZ politics, Catalan independence or remembering the 30th anniversary of Black Monday – then today is about greed and how governments can squeeze out private money. The brea
k out for US 10-year rates maybe central for understanding today and risk elsewhere. The break out of USD/JPY beyond the 113.40 line opens 115.50 post the Abe re-election. It’s a question of how many seats the LDP wins or loses and if BOJ Kuroda remains or is blamed. The UK faces a similar breaking point with GBP watching rates – helped by May, hurt by the unreliable boyfriends at the BOE. BOE Cunliffe became the latest policy maker to strike a cautious tone when he said the timing of rate hikes was an “open question,” even as the market prices in 80% chance for a November 25bps hike. GBP is doing better than the EUR today but the USD is the main mover for everything else. For trading today, the USD breakout risk requires support from the US rates – with 2.45-2.50% targets in 10Y the needed move to really change the present dynamic. Talk is cheap, money less so.