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The Weekly Track tricks-not-treats

- The Weekly Track – Tricks not Treats by Bob Savage
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The search for a safe-haven in October has been difficult. There are few places to hide and the threat of more tricks than treats in the week ahead leave few comfortable being long the USD as the safe-haven but for 2018 overall that is the winner. Many see the tricks that have supported markets since 2009 as waning and the sweetness of easy money fails amidst a world filled with political unrest. The rate hikes and the Trump tax reform has lifted the dollar and it has crushed emerging markets, bonds, equities globally. The lack of an obvious set of safe-havens in a correction is part of the FOMC problem and its going to be a focus as the BOE and BOJ meet to discuss their own paths to normalization. The fear that the world growth has turned over rests with China and its reaction function. That the stock market there was the only one up didn’t comfort anyone last week. The faith in policy isn’t sufficient and the PMI reports in the week ahead maybe a key driver for t
he big 7.0 CNY breakout that so many fear – adding to the USD story. The lack of responses from the Fed or the ECB last week to the market turmoil stands out as different and something that maybe changing should the selling of risk-assets continue. The search for a safe call in bonds maybe the only solace and clearly, that is the play many expect, with a pause in December for the FOMC not impossible. More pressing will be the mix of jobs and growth data for the US and Europe in the week ahead. What many central bankers have given up on – the Phillips Curve – maybe returning at just the wrong time with inflation risks far underpriced, the volatility in bonds maybe just getting started. Fears are rising for peak earnings, for a FOMC policy mistake, for Trump trade policy to bite growth and for US elections to matter for 2019 growth. Few investors can look at the results from last week and not have a cold, skin-crawling shudder. As JPMorgan Normand notes “only twi
ce in history have markets been this ugly: the 1970’s stagflation and the global financial crisis.”