EUR 8.43 For Business Accounts Only

The Morning Track tis-the-season

- The Morning Track – ‘Tis the Season by Bob Savage
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While we all know ‘tis the season to be jolly, markets are not in the mood yet. The spectrum of interest in trading markets rather than enjoying the holidays drives today as the TGIF risk-reduction mood meets the bad-news-means-good policy reflexivity hope that competes for investor positioning into the last two week for 2018. Holiday trading rules are different than normal, as illiquidity and illogic dominate and beat out other factors of value, momentum and carry. This is a day where news flows matter in the longer-term but not in the short-term. The reason we are in a panic rests with the central bank put on risk asset hope. There are some notable negative surprises to consider for that faith –
• European flash PMI show growth weakest in 4-years and that French business has been badly hurt by the yellow vest crisis with PMI contracting for the first time in 2 ½ years – all of which puts ECB policy of ending QE in question;
• Russia’s central bank raised rates 25bps to 7.75% surprising the market, reflecting the need to contain RUB weakness.
• Chinese retail sales and industrial production are much weaker than expected, raising prospects for PBOC easing action and more fiscal stimulus from Beijing;
Not all news is negative – Japan Tankan was better than feared, but outlooks are worse. The Japan flash PMI was better as well. WPI fell in India and leaves some hope that RBI is on the right path regardless of Modi pressures. The net result is that we are going back to a US growth divergence world – unless the retail sales today disprove some of that – the US rate moves and oil drops have left room for FOMC pausing and ongoing 2019 growth above potential. The USD is king still – while the EUR suffers. If you want to trade global risk just focus there. EUR 1.1180 is the next target.