View from London: Impacts from US, Russia, Japan, Germany, Spain

07/28/2017 2:53 am EST


Robert Savage

Partner & CEO, CCTrack Solutions

The chart suggests we have more consolidation than upside but the mood and news events post-midnight suggest we march back to test new highs, writes Bob Savage, CEO of Track Research in Friday commentary from London.

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Nothing good ever happens after midnight–or so my mother told me as a teenager.

What happened last night matters as the U.S. Senate killed the hopes for any Congressional healthcare reform.

Investors got choices.

They can listen to country and western music on the radio and watch growth along with inflation in the U.S. and Europe.

The story of the day is in the pain trade of equities and bonds both being lower. This can be blamed on U.S. politics–as the Senate killed the “skinny” healthcare repeal plan, Russia closing the U.S. embassy in Moscow in retaliation for American sanctions over meddling with the election, German inflation, which rose instead of declined and Spanish growth, which returns to pre-2008 levels. Even Sweden GDP returns to 2010 levels.

Japan with its monthly data dump didn’t move the needle on CPI but had better unemployment and strong household spending. The BOJ summary of opinions was more of the same–while BOJ purchases were in line today. The price action today is ugly but it’s quasi-month end and so most can ignore this risk-off dash as a window dressing or a simple hangover from too much drinking post midnight.

There is a sense that the euro/U.S. dollar (USD) weakness trends are intact now with the rise of inflation in Europe in lock step with its growth.

This isn’t a Goldilocks scenario anymore but one that drives on normalization being justified–something that will make the bears look for credit troubles and punish debtors–witness the EU periphery bonds as they begin to sense that the ECB won’t be supporting their markets forever.

Needless to say, the markets are obsessed with the EUR still and the great volatility of the last three days stands out in comparison to the dead calm of the last three months.
The chart suggests we have more consolidation than upside but the mood post-midnight suggests we march back to test new highs.

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