EUR 21.16 For Business Accounts Only

The Weekly Track overload

- The Weekly Track - Overload by Bob Savage
http://trackresearch.com/articles/the-weekly-track-overload/

The endless political headlines from the news tape continue to overload markets. The politicization of GDP and the FOMC and the FX markets didn’t stop last week and seem unlikely to end with July. While many would like to say the blood moon lunar eclipse was a once in the century story, ongoing strife on earth rotates forward. The Trump tweets threatening a government shutdown into the US mid-term elections add another layer of spice to the summer heat. The biggest two stories from last week are likely to remain in play next – with US Trump’s willingness to deal with the EU on trade likely setting a similar path for NAFTA in August. The US GDP in 2Q at 4.1% allows the US room to push back on China and not deal. This is the overloaded circuit breaker for trading as CNY weakness drives fears of more awkward capital flows with risks to US Treasuries, US real estate and US supply chains in technology and cars. The CNY appears to be the escape value for Beijing with the
hedging opening the 7.0 CNY line again. The costs of US deal making to credibility and diplomacy are not known or easily priced leaving that uncertainty for another rainy day. Until then we are in the month-end mode for July where risk rotations and set ups for August and September noise become real. The shift of risk back to USD this last week was notable and at odds with the shove up in emerging market equities and FX. This seems linked to the FOMC meeting next week and the ongoing US rate hike regime. Higher real growth in the US means higher real rates. This still may overload the money flows elsewhere even with US trade deal hopes driving commodities and risk moods higher. Balancing economics, politics and positions in the last month of Summer trading seems less simple and more wrought with fear than usual. Usually, higher uncertainty begets higher volatility – that didn’t work out last week in FX but maybe that is the opportunity for August.