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The Weekly Track cavu

- The Weekly Track – CAVU by Bob Savage
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The last week tested many investors as they awaited the outcome of the G20. The bounce back in risky assets, excluding oil, highlights the present confusion bringing the best week for the S&P500 in 7-years and oil had its worst month in a decade. Surely this wasn’t just about US/China trade hopes or OPEC discord, this last week brought more clarity on the UK Brexit, the Italian Budget, the US and global economy – all managed to squeak by with less than feared outcomes but clear signs of a slowing global economy. The other big event was the FOMC Chair Powell comments on US rates being “near neutral.” He backtracked from 3-4 hikes in 2019. That dovish tone, mixed with the hope for a US/China trade deal, sent markets higher with both bonds and equities benefiting. The Saturday truce between Trump and Xi over US trade tariffs is clearly temporary and a prelude to a long month ahead with more talk and less clarity over the path towards a real agreement. Expect the prom
ise of Trump to not put more tariffs on China and Xi’s to buy more US goods will help Soybeans, NatGas, tech shares and ease some auto manufacturing fears. Expect the conversations of Saudi, Russia and others at the G20 to set up for a more productive OPEC meeting in Vienna next week. The effect of this will likely clear up the skies for risk further as hope becomes the currency of the season. None of this will likely solve the US political discord at home and abroad, nor the Russia/Ukraine, Saudi/Iran, Saudi/Turkey animosity. The passing of the 41st President George Bush will suggest the end of a political era where republicans could speak and be listened to by democrats and vice-versa. His death marks an end to US cold-war Presidents and the end of coalitions of the willing – as was seen in the first Gulf War against Iraq. Also, notable last week, was the bounce back in carry trades. Yields mattered again, particularly in FX with the AUD/JPY and NZD/JPY rally notabl
e despite their own mixed economic data. In emerging markets, the lower oil prices showed up supporting India and Korea along with the Bank of Korea raising rates to stem capital outflows and curtail frothy house prices, while it hurt Russia and Brazil. Rates still matter. The risk rally that started last week rests on whether oil and other commodities believe in the truce and growth stories for 2019. AUD/JPY becomes the barometer for measuring this faith with 84.80 and 90 targets should a Santa Claus rally ensure while further acrimony or any other geopolitical surprising will likely return us to 80 and 78 stops.