The only barometer for the risk-on and risk-off world that seems to be working is the Japanese yen (...
The Morning Track from London: Tired New Tools
06/29/2017 2:53 am EST
The moves against the USD are looking dramatic enough to make some risk-taking in equities and bonds look wobbly and so the pace of hammering maybe slowing but far from over, asserts Bob Savage, CEO of Track Research in Thursday commentary from London.
Imagine the first hammer and how that tool changed the world.
Then it got tired and was replaced with jack-hammers, then lasers.
We are in the same thought stream for central bankers as they get tired of their new tool of forward guidance. Stability in financial markets is not required as many tend to see bubbles and pockets of irrational exuberance.
The question to ask today whether forward guidance dead? From ECB Draghi to BOE Carney to BOC Poloz–all sounded hawkish to markets and put the low for longer mantra into doubt. They put the there is no alternative trading theme at risk–leaving many confused about equities, terrified of bonds and confused about the USD.
The USD weakness is more about EUR and GBP and CAD strength.
The US has already moved on normalization and its forward guidance died long ago as it transformed into data dependency and now normalization.
Expect that this is the path of other central bankers to follow. Markets aren’t all clear on risk as its month-end and there are still plenty of key data points to consider–flash June inflation in Europe being one of them and with Germany higher–the pressure on Draghi to sound more optimistic on dropping QE seems reasonable.
Score another tic up on the EUR.
For GBP, BOE Haldane comments were more contrite than Carney yesterday (June 28)–making clear that a hike isn’t a certainty in August, cap the GBP at 1.3050 again. For the C$, we get data ahead that matters GDP tomorrow–with the C$ tempered at 1.30.
The moves against the USD are looking dramatic enough to make some risk-taking in equities and bonds look wobbly and so the pace of hammering maybe slowing but far from over.
The USD is a leading guide to how fast central bankers to talk back their easy policy and the 95.85 break today merits close attention with 94.50 the next big level.
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