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The Weekly Track full-bloom-2

- The Weekly Track – Full Bloom? by Bob Savage
http://track.com/articles/the-weekly-track-full-bloom-2/

The best of times never feels that way at the moment. The Summer Solstice came and went and the longest day of the year passed with little celebration – so too for market’s another record high for equities, another central bank rate hike – this one from Mexico - and more evidence of ongoing coordinated global growth recovery as shown by Japan lifting its economic outlook for the first time in 6 months. And yet, the bloom is off the rose for growth in the US and China. 2Q and 3Q outlooks are being marked lower. Rate fears are rising with policy mistake talk. The hope for inflation from policy lags and the drop in oil prices leave many doubting the anchors for higher price expectations works into 2H2017. The soggy PMI flash reports from Japan, US, Europe and the ongoing political battles everywhere take some of the shine off the markets as well. No one sees anything cheap, nor anything especially exciting, but there are no alternatives in a negative rate, quantitat
ive easing world. The choice of doing less and waiting it all out for Labor Day rises as a strategy. Flat is becoming a favorite position. This leaves the chase for yield and the selling of volatility in full summer mode but with many wondering if we are at full bloom for those trades – with the drops in volatility notable across most markets – Bonds, Stocks and FX. The key fear is that something will change – politics, inflation, debt or financial conditions or an exogenous shock significant enough to make the present historically low volatility environment more dangerous – that drives the flat summer outlook. The risk for the week is that one or more of the drivers for fear matter into half-year end and so we see something that makes this chart of volatility change.