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EUR 21.16
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/articles/the-weekly-track-reconvergence/
We know enough to judge but not convict the markets of optimism in the last week. Hope for US/China trade talks maybe dashed by the weekend acknowledgment that Trump plans to impose another $200bn in tariffs on over 1000 Chinese products. Hope for an US/Canada trade deal remains one of talks with a soft end-of-month deadline. Hope for emerging market stability came from a Turkish Central Bank rate hike of 6.25% to 24% - enough to hold the TRY but not Erdogan. As Hurricane Florence battered the US East Coast but with more flooding than coastal mayhem, while the Philippines was hit by a massive Typhoon Mangkhut which continues to Hong Kong, China and Macau today. The FOMC in two weeks will likely hike rates but the path after that rests on the data and last week brought benign inflation suggesting room for a pause is possible even if it’s not probable. Knowledge is power and the reflexivity of such has dominated the past week. We live with a new paradigm for risk-on an
d risk-off based on the trade policy, FOMC normalization and the growth of the rest of the world. The surprise lesson from last week maybe in that reconvergence of moods where the US ebbs and the EU rises just enough to make the idea of ECB tightening, BOE tightening and others believable for 2019. The consequences of all these points come together in the US dollar which had its worst week since February, reflecting and supporting the return of risk trades anywhere but with a bias to value in developed markets over emerging markets. There was no rush for carry trades but rather more covering of short positions as negative momentum plays petered out. For the week ahead, expect the USD to remain the barometer to reflect this new RORO (risk-on and risk-off) world of reconvergence where we all know that we don’t know the next outburst of tweets or storms or policy prescriptions. Watching US dollar return to 18-month trading band of 95.50-92.50 with risk that 94 breaks and op
ens a larger downside test implying further gains for risk assets abroad.
The Weekly Track reconvergence
- The Weekly Track – Reconvergence by Bob Savage/articles/the-weekly-track-reconvergence/
We know enough to judge but not convict the markets of optimism in the last week. Hope for US/China trade talks maybe dashed by the weekend acknowledgment that Trump plans to impose another $200bn in tariffs on over 1000 Chinese products. Hope for an US/Canada trade deal remains one of talks with a soft end-of-month deadline. Hope for emerging market stability came from a Turkish Central Bank rate hike of 6.25% to 24% - enough to hold the TRY but not Erdogan. As Hurricane Florence battered the US East Coast but with more flooding than coastal mayhem, while the Philippines was hit by a massive Typhoon Mangkhut which continues to Hong Kong, China and Macau today. The FOMC in two weeks will likely hike rates but the path after that rests on the data and last week brought benign inflation suggesting room for a pause is possible even if it’s not probable. Knowledge is power and the reflexivity of such has dominated the past week. We live with a new paradigm for risk-on an
d risk-off based on the trade policy, FOMC normalization and the growth of the rest of the world. The surprise lesson from last week maybe in that reconvergence of moods where the US ebbs and the EU rises just enough to make the idea of ECB tightening, BOE tightening and others believable for 2019. The consequences of all these points come together in the US dollar which had its worst week since February, reflecting and supporting the return of risk trades anywhere but with a bias to value in developed markets over emerging markets. There was no rush for carry trades but rather more covering of short positions as negative momentum plays petered out. For the week ahead, expect the USD to remain the barometer to reflect this new RORO (risk-on and risk-off) world of reconvergence where we all know that we don’t know the next outburst of tweets or storms or policy prescriptions. Watching US dollar return to 18-month trading band of 95.50-92.50 with risk that 94 breaks and op
ens a larger downside test implying further gains for risk assets abroad.
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Robert Savage
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