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The Weekly Track winter-of-our-discontent

- The Weekly Track - Winter of our Discontent by Bob Savage
http://track.com/articles/the-weekly-track-winter-of-our-discontent/

This is no winter of discontent despite the actual weather in the US Northeast where snow has come back with a catch-up to January’s calm thaw. The push for 2 feet of cold, white, wet stuff seems in contrast to the balmy markets of the last week where greed beat fear. The political noise of the first 20 days of the US Trump Presidency have left many watching tweets more than economic data. The schism over US policy runs deep but not as problematic as in other times and places. The other winter of discontent was in 1978-1979 when mass strikes hobbled Britain and led to the rise of Maggie Thatcher. The series of protests and such against the new US President aren’t even close to that discontent. Perhaps the other winter of discontent is mimicking the Steinbeck’s last book where moral decay becomes a tale of family and money. Many are looking back to the 1970s not for labor strife but for stagflation signals driven by weaker productivity. Where higher inflation and s
ub-par growth followed ugly geopolitics over oil and angry voters split politics. The present course seems far too easy to make any comparison. In fact, the return of growth globally suggests a very different course ahead.

The markets are thinking beyond the Trump Trade. It’s not just about tax reforms or immigration or border adjustment taxes. Corporate Profits in 4Q were positive for both the US and Europe bolstering equity markets. The FOMC seems unlikely to hike in March – making 2 hikes rather than 3 in 2017 the central expectation. Rate divergence with the US shifts lower and the USD follows. The fear of a larger confrontation with China has lessened, and China data suggests a rebound there – despite ongoing fears about leverage. Japan and Europe are both in recovery mode with better growth stories supporting better risk assets and their respective central banks as they remain both with negative rates and QE policy. Against this good support for risk assets we have ongoing doubts from the Europe elections, doubts from Oil markets that the OPEC production cuts will work, doubts about Emerging Markets like TRY and MXN that rest on political fears or India that revolves around th
e de-monetization hit to the economy and an RBI not yet easing despite weaker prices. We also have a healthy dose of doubt from the flow of money into and out of markets with US 10-year bond yields stuck between 2.30% and 2.60% and the USD unable to break back over the 100-day average. The great trade rotation out of bonds into stocks stalled. No one seems certain of anything in markets outside of equities. Leaving the FOMC Yellen testimony – formerly known as Humphrey-Hawkins - as central to ending the stalemate in rates and the USD.