EUR 8.14 For Business Accounts Only

The Morning Track tweaks

- The Morning Track - Tweaks by Bob Savage
http://trackresearch.com/articles/the-morning-track-tweaks/

Shuffling the deck chairs on the Titanic. Markets are waiting for the US jobs report today to decide if growth in the US merits hawkish views on policy and justifies higher real rates. Whether the USD bid is good for risk or bad rests on this outcome. Until then, the USD moves on the basis of the rest of the world and how they shuffle their words about policy. The bearish tilt of the US S&P500 contrasts with the bullish 6-week uptrend in the Euro Stoxx 600 and this is the mirror of the EUR which stays near 4-month lows as the USD recovers over its 200-day moving average this week. Just as the FOMC tweaked its statement by removing “near term” from its balance of risks, so too, the RBA added “at some point” to its forward guidance for higher rates and this was seen as hawkish driving A$ to lead FX mover in Asia, but reverses in Europe. The Czech National Bank kept rates unchanged at 0.75% - as expected – but it tweaks its forecast for a rate hike late in 2018 wa
rning it could come earlier – also sounding hawkish. The threat for markets remains in a larger taper tantrum in Europe and Asia. The fear for markets is in geopolitics and the opening gambit for the US in talks with China over trade was to call for a $200bn drop in the deficit. China military are targeting US flight crews over East Africa with lasers – harassing US military and adding to trade talk drama. At the EU open, Xinua said the 2nd day of negotiations were “candid, efficient, highly constructive.” The talk for Trump pulling out of the Iran deal continues – with some hopes for diplomacy for a new accord. North Korea is said to agree to full denuclearization – but by 2020 not by 2019 – leaving some doubts over US reactions. The Italian 5-Star movement is pushing back and calling for fresh elections – though BTPs don’t seem to care. Brexit transition periods are the latest tweak to talks as custom union regimes seem unlikely to be easy or fast, and
UK May saw local council elections net benefit Tories from the collapse of the Independence Party – with Labour struggling outside of London but also net gaining from the vote just not as much as hyped. As for the shadow over the global growth story, Composite PMI reports were solid for Asia, weaker in Europe with Germany notably off its highs, leaving the pain trade in EUR intact along with ongoing weakness for emerging markets – witness the ARS mess, IDR, TRY moves. How emerging markets defend their currencies or lift their rates to fight imported inflation will define the risks to global growth.