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http://trackresearch.com/articles/the-weekly-track-not-easy/
Dragon Boat festivals and the Druid Solstice mix to set the tone for the months ahead. This is summer and its supposed to be easy like central bank money policy. Weather in the Northern hemisphere plays a role in growth and the obsession of 2018 was in the continuation of coordinated global recovery eating up capacity and bringing inflation allowing normalization of policy everywhere. Yet the last week’s obsession with central bank policies and geopolitics did not lead to significant volatility. There was no tumultuous late-Spring market storm but rather an early, blissful, lazy summer calm. Witness the drop in the VIX, the rally up in Italian Bonds and the US S&P500 holding. Faster US rate hike paths along with better growth outlooks, more dovish ECB tapering plans along with lower rates for longer plans balanced against risk-markets left most investors content to buy and hold for a long summer ahead – at least in the US and Europe perhaps not in Asia or emerging mark
ets. The only fly in the low rate ointment is the rising risk for a trade war as the US $50bn tariffs on China lead to retaliation and follow last weeks G7 debacle and allies’ responses to US tariffs on steel. The FOMC rate hike coupled with US trade policy trouble led to risk-off in Asia last week and it had the most notable effect on emerging markets with ARS off 8%, TRY off 6%, ZAR off 3% and BRL off 1% after the move. June has brought a host of rate hikes in emerging markets to battle inflation linked to weaker FX with more expected ahead. The compare and contrast of rate paths mixing toxically with geopolitical fears sets the tone for the week ahead. The summer tonic won’t mix well with the news agenda - light economic data and heavy central bank meetings. The ECB Sintra gathering (their version of Jackson Hole) could be one event worth watching as it spells out the liquidity trap fears for the present policy mix in Europe. The SNB, BOE, Norges meetings are expect
ed to be on hold but future guidance remains essential. The immigration battles in Europe will be another focus with German coalition squabbles and the new Italian government dealing with fractured politics and France. The Greek EU debt relief agreement and more EcoFin handwringing on US trade will also matter. The OPEC meeting this week will make clear the dividing lines between Saudi and Russia versus Venezuela and Iran with most expecting some output increase compromise. The list of events into the week ahead make clear that summer won’t be so simple or easy. The US seems far more hawkish than anyone else and so the summer simple game of buying USD and foreign equities clashes with the risks of politics, trade wars and any other surprise.
The Weekly Track not-easy
- The Weekly Track – Not Easy by Bob Savagehttp://trackresearch.com/articles/the-weekly-track-not-easy/
Dragon Boat festivals and the Druid Solstice mix to set the tone for the months ahead. This is summer and its supposed to be easy like central bank money policy. Weather in the Northern hemisphere plays a role in growth and the obsession of 2018 was in the continuation of coordinated global recovery eating up capacity and bringing inflation allowing normalization of policy everywhere. Yet the last week’s obsession with central bank policies and geopolitics did not lead to significant volatility. There was no tumultuous late-Spring market storm but rather an early, blissful, lazy summer calm. Witness the drop in the VIX, the rally up in Italian Bonds and the US S&P500 holding. Faster US rate hike paths along with better growth outlooks, more dovish ECB tapering plans along with lower rates for longer plans balanced against risk-markets left most investors content to buy and hold for a long summer ahead – at least in the US and Europe perhaps not in Asia or emerging mark
ets. The only fly in the low rate ointment is the rising risk for a trade war as the US $50bn tariffs on China lead to retaliation and follow last weeks G7 debacle and allies’ responses to US tariffs on steel. The FOMC rate hike coupled with US trade policy trouble led to risk-off in Asia last week and it had the most notable effect on emerging markets with ARS off 8%, TRY off 6%, ZAR off 3% and BRL off 1% after the move. June has brought a host of rate hikes in emerging markets to battle inflation linked to weaker FX with more expected ahead. The compare and contrast of rate paths mixing toxically with geopolitical fears sets the tone for the week ahead. The summer tonic won’t mix well with the news agenda - light economic data and heavy central bank meetings. The ECB Sintra gathering (their version of Jackson Hole) could be one event worth watching as it spells out the liquidity trap fears for the present policy mix in Europe. The SNB, BOE, Norges meetings are expect
ed to be on hold but future guidance remains essential. The immigration battles in Europe will be another focus with German coalition squabbles and the new Italian government dealing with fractured politics and France. The Greek EU debt relief agreement and more EcoFin handwringing on US trade will also matter. The OPEC meeting this week will make clear the dividing lines between Saudi and Russia versus Venezuela and Iran with most expecting some output increase compromise. The list of events into the week ahead make clear that summer won’t be so simple or easy. The US seems far more hawkish than anyone else and so the summer simple game of buying USD and foreign equities clashes with the risks of politics, trade wars and any other surprise.
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Robert Savage
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