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The Weekly Track zigzag

- The Weekly Track – Zigzag by Bob Savage
http://track.com/articles/the-weekly-track-zigzag/

For the Week ahead, the focus will be on the storm damage, the new US political landscape,the UK Brexit vote and risk to GBP reversal, the China data confirming growth and stability and perhaps a ceiling for CNY, the USD trend lower and the upcoming election risks– with Norway’s election this weekend to Germany and New Zealand in 2 weeks. If we learned anything last week it’s that the forecasts aren’t always accurate but they generally catch the risks ahead. The focus in the US was on Harvey damage and Irma fears. Irma hits Florida with a Category-4 storm that will envelope the entire state, and then drives like Sherman, to Atlanta and perhaps follow on to Memphis. The zig was that the East Coast expected the worst of the storm, and the zag is that it’s now the Gulf Coast that suffers. That forecast isn’t good for US crops with cotton, orange juice, lumber and soybeans all at risk. The zigzag in the path from east to west hurt many seeking shelter in Florid
a as those in the South felt Tampa was safe only to find it’s now in the direct path. The zig-zag in forecasts was reflected in US politics last week as well as President Trump sided with the Democrats to pass a $15bn Harvey aid bill and extend the debt ceiling debate to December. This puts the Republican Congress on notice and begs the question of whether the US has a 2-party system or something else as the GOP big tent gets ripped in the storm winds. The silver lining of the storm maybe in the force to unite and agree on tax reform. The FOMC added to forecast uncertainty as Vice-Chair Fischer resigned with his departure set for October leaving the December hike risk much lower. Throw in the new delayed debt ceiling debate in December and you have all the reasons to wait for 2018 before more “normalization.” There was another zig-zag last week – North Korea – which tested a Hydrogen Bomb but decided on National Day not to launch a ICBM to celebrate – its rest
raint will set the tone for the Asia regional risks as both China and Russia push for talks rather than more sanctions while US and Japan want oil embargos on the hermit nation to stop Kim from further nuclear threats. Markets will be watching for the next provocation even as Putin seems to be playing a new role in a tired conflict similar to his intervention in Syria 2-years ago. Last week was supposed to be about central bankers – and they didn’t disappoint either – but they had much to compete with as the ECB Draghi did his best to sound dovish but the EUR rallied to 2 ½ year highs while the Bank of Canada become more aggressive and surprised with a 25bps hike – sending CAD to 2012 trend resistance up over 7% since June - and the Brazil COPOM cut 1% - with the BRL gaining anyway. Forecasting the moves short and medium term for markets requires agility in assessing the factors as they change faster than the weather with growth, inflation, interest rates and pol
itics all competing for primacy. If we learned anything this year its that the ides of the month are difficult and have been notable in their reversals. The sharp rise in gold and the drop in bond yields in the US and Europe are warning signals for risk but maybe we all just need a bit more zig and zag to understand the growth and value propositions ahead.