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View from London: Traders Look for Direction in Market

07/25/2017 2:57 am EST


Robert Savage

Partner & CEO, CCTrack Solutions

Plenty of headlines today from China, Russia, North Korea, Sweden and Washington, but not for the markets directly. writes Bob Savage, CEO of Track Research in Tuesday commentary from London.

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Markets cycle into month-end with mean reversion. Translation–nothing much is happening in markets ahead of geopolitical fears, more 2Q earnings, waiting for words of wisdom from the FOMC.

There really is no reason to trade other than technical and so we drift.

There are plenty of headlines but not for markets directly.

Chinese warships join Russia in a Baltic naval drill, as China tightens its border with North Korea in preparation for potential US action, as Sweden deals with a massive confidential information leak that may hurt the government, as Alphabet (GOOGL) earnings drop because of the EU $2.7bn fine, as U.S. sanctions on EU companies behind the Russian Nord Stream gas pipeline risk further trade issues and as the fear of a monetary policy error rises into the FOMC meeting with balance sheet normalization clearly the focus.

The other more immediate story is about Europe and the ECB normalization talk–as they have much further to move than the U.S.–with ECB Mersch starting the fear–upside risks to growth forecasts–and the German IFO upside surprise at odds with the weaker PMI flash reports yesterday (July 24).

The whipsaw in growth hopes was notable and equities are higher reflecting the macro mood of better growth and low inflation being wonderful for risk. The only fly in the ointment for much higher equities and a weaker U.S. dollar (USD/EUR) is rates and the start of the FOMC meeting reminds many of that obvious risk.

The 2.29% 10Y yield level looks important today and will be in play as the market looks for some direction.

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