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View from London: Stuck in Bond Trading Hell?

07/07/2017 2:59 am EST

Focus: CURRENCIES

Robert Savage

Partner & CEO, CCTrack Solutions

What seems clear about trading markets in July is that buying every dip whether in bonds or stocks isn’t so simple. Volatility has shifted a bit, asserts Bob Savage, CEO of Track Research in recent commentary from London.

Talk is the key for the day. The European taper tantrum, the Putin/Trump talk, the G20 summit and protests, the whispers about Non-Farm Payrolls.

The US data is usually the main focus for trading markets in a month–and yet this summer its less powerful compared to the politics and the inflation themes. That matters on the day as the whisper of 165,000 NFP means you need something below 100,000 or above 225,000 to matter.

The ECB minutes yesterday (July 6) still matter to markets–as they set the tone for a gradual exit path. While this was countered by the BOJ action to cap rate rises in 10Y.

What seems clear about trading markets in July is that buying every dip whether in bonds or stocks isn’t so simple. Volatility has shifted a bit and while it’s now back to the lower middle of the yearly range, it’s still far away from any level of risk-off.

You just need to look at Japanese yen (JPY) and Gold to confirm that the bond taper tantrum in Europe just isn’t sufficient to derail other markets yet. Some of that is the BOJ battling alone with its QE and 0% 10Y target. However, after the data today, maybe it will be different.

The smoke screen of rates higher meaning less growth has been broken but if there is rates higher and less growth in the US data–watch out.

So we watch EUR/JPY as the risk barometer overnight with the 200-week m.a. at 130.70 key for 132.50 aspirations–but ultimately we all still remain stuck in bond trading hell with whispers of ever larger stops above 10-year rates 2.44%.

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