EUR 23.18 For Business Accounts Only

The Weekly Track legends

- The Weekly Track – Legends by Bob Savage
http://track.com/articles/the-weekly-track-legends/

Markets tell stories so that investors can believe in them and put money to work. One such legend is that bonds lead equities – something the FOMC and other central bankers have used to drive QE and stoke animal spirits. Success in investing starts with the story, those that tell them best become legends – like Warren Buffet or George Soros. Legends in other places, like rock-and-roll drive entire genres – new worlds for art - the world lost one of those this weekend with the passing of Greg Allman, the founder of Southern Rock. What other legends may be passing in the next week? For markets, it’s the sell-in-May-and-go-away adage. For some it’s about the relationship of uncertainty and volatility as the VIX dances near historic lows. Relationships in flux as you can see by the copper and S&P500 relationship. The ability to see why these changes are happening requires significant work and some nimbleness as we learned from last week – headlines don’t al
ways drive markets as most would expect:
• China Debt Downgrade by Moody’s – CNH higher, Shanghai Composite higher
• UK Manchester Arena Terror Attack claimed by ISIS, kills 22 – UK FTSE higher.
• UK May’s Conservatives see lead narrow in polls – Gilts rally near April record lows.
• OPEC agrees to 9-month output cut extension – Oil reverses 5% lower.
• FOMC minutes – most agree need to cut balance sheet this year – bonds rally.
The reaction function of markets, like that of politicians and policy makers, isn’t always in a straight line. What seemed like a good story to explain risk has significantly changed since January. June will bring us another story – perhaps one that can explain why Chinese PPI, the Baltic Freight and the price of oil are all related but not yet believed by equities but by bonds.