Focus remains on the US dollar as the key macro input for equities and bonds but there are plenty of markets where the USD is looking better–GBP, AUD and most importantly the JPY, writes Bob Savage, CEO of Track Research in Monday commentary from London.
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Slow day with fast talk–making trends less certain.
The U.S. dollar/euro (USD/EUR) gives back some ground on the EUR today as the markets try to listen from a Monday morning haze.
China talks a big game after ASEAN displeasure on the South China Sea islands and UN sanctions on North Korea.
Russia talks about US sanctions forcing it to rely less on the US dollar/Russian ruble (USD/RUB) still lower with oil.
The UK Telegraph reports that the government there wants a quick GBP40bn Brexit divorce bill–GBP lower against the British pound/euro (GPB/EUR).
Markets are hearing some of the facts. The Swiss central bank (SNB) reports a drop in sight deposits proving talk of their buying euro/Swiss franc (EUR/CHF) wrong and hurting EU bonds accordingly. Swiss CPI highlights the need for an even weaker CHF. EUR rallies further on the back of that and after it rethinks the US Friday jobs story.
New Zealand dollar/US dollar (NZD/USD) is lower into the RBNZ meeting this week as the inflation expectations there drop.
German weak industrial production hits the German stock index (DAX) more than the EUR or Bunds as the focus on auto pain continues.
Sentix also reflects on weaker confidence warning it maybe through the zenith. But making too much of the EUR/USD moves from Friday to today is not productive. It is summer and technical price moves need to be considered against volumes and real information shifts. Fast talk obscures the reality of the longer-term factors that remain the key for understanding central bankers’ reaction functions.
We remain in that uncomfortable place where mean reversion thrives and trends stall. It is called August. Reversals and dispersion are likely to continue across markets.
Focus remains on the USD as the key macro input for equities and bonds but there are plenty of markets where the USD is looking better–GBP, US dollar/Australian dollar (USD/AUD) and perhaps most importantly the Japanese yen/US dollar (JPY/USD)–where Shinzo Abe remains mired in weak poll support and the BOJ remains mired in endless QE.
A break of JPY 111.50 would be something to pay attention to today if we can listen beyond the fast talkers.
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