"You know what made yesterday so much fun? For a brief window of opportunity we were able to envision a lot of green shoots globally and talk in the context of a whole set of crystal champagne flutes half-full. Which central bank might be the next one to surprise with a hawkish spin was actually a topic. Speculation, idle or not, on widespread retractions of liquidity was good news, not of that soul-crushing bad news is good news variety."
Frankly, writes former trader and Bloomberg editor Richard Breslow "it was the first time in a long time, I could say markets were compelling."
As Breslow notes, The dollar was up, as were sovereign yields. Gold was through an important first line of support and equities more than kept their composure. Fed speakers stayed on message, Draghi’s speech today was eagerly awaited. Sterling held near recent highs as traders debated how many dissenters there might be at Thursday’s MPC meeting over keeping rates on hold. And then events tried to conspire to rob me of all of my sanguineness.
As I read the comments from the North Korean ambassador and then the reactions to the news from Washington, I kept crooning, “Mama, don’t take my rosy glasses away.”
It strikes me that the bellicose comments amount to little. Been there done THAAD. The market reaction, modest as it was, was more an end of day squaring after nice moves than any sort of sea change of opinion.
The White House announcement is more problematic even if the comparisons to Watergate are grossly overdone. The seriousness of that episode shouldn’t be marginalized by the necessities of the 24/7 news cycle of today. The investing issue here is no one really knows what it might mean. And won’t do for a long while. What it means for future policies and governance is unclear. What if he picks a really good or bad successor to James Comey?
I know we love to indulge in being serially outraged, whether justified or not. But markets have also shown a bizarre, at times mystifying, willingness to ignore events that seem to justify immediate repercussions. We’ve had to learn to separate our politics from trading. Which isn’t an easy thing to do.
So what are some obvious things to watch as indicators of whether Tuesday’s trading was merely range extension or the start of something new and interesting? Was the news seminal or transitory? Gold above or below the 1220 pivot is a good start. We didn’t manage a close through that level.
The 10-year Treasury can use a pivot of the ~2.40% yield, but needs to close above there. Not a big ask, nevertheless a meaningful one. It’s hard to think the Fed will change its tune, but markets have probably put a bigger weight in their forecasts on tax cuts and other fiscal policy proposals than the members of the FOMC are willing to admit are embedded in theirs.
ECB President Mario Draghi’s comments today stuck to an important script that supports the dollar. Things have definitely gotten better but “the time hasn’t come to think about QE exit.”
Upbeat, but clearly not a surrender to the German faction. No headwind for the Fed, but no rate competition either. The dollar index needs to hold above 99. That gives only one-half percent to play with.
Breslow sums up the trading environment perfectyly... As far as equities are concerned, they’re in a world of their own. The S&P 500 up or down a percent will tell you nothing. Meanwhile, I retain all of my biases intact and wait and see.