View from London: Looking for Signs from Yellen, Draghi at Jackson Hole

08/24/2017 12:00 pm EST


Robert Savage

Partner & CEO, CCTrack Solutions

Markets don’t care much about anything until after they hear from Janet Yellen and Mario Draghi in Jackson Hole, writes Bob Savage, CEO of Track Research in his Wednesday commentary from London.

Walls and markets have something in common – walls can people locked in and out – while prices can do the same – as people have the choice of doing nothing. 

Sometimes we see that more clearly than others like in the summer when thin volumes are confused with low volatility. 

The return of US politics as a risk factor hit Asian markets Tuesday night with US putting tariffs on China companies as per UN sanctions for North Korea, and as Trump tells a rally in Phoenix:  “If we have to close down our government, we’re building that wall.” This also included talk of ripping up NAFTA, beyond thin volume due to summer, Hong Kong shut because of Typhoon Hato, despite all of that the MSCI Asia Pacific was positive again – up 7 of 8 days – and European markets opened less focused on the flippancy of the US president and more on the EU data. 

The stronger German flash PMI report and the overall rise in the flash Eurozone PMI was sufficient to return markets to summer consolidation mode. 

The weakness in services in Europe is more than made up by the rise back in manufacturing, but there is little sign of inflation – and that remains the key focus for most investors, traders and central bankers. 

The ECB Draghi speech was a non-event as most expected. There is a wall at 1.16 and 1.19 in the EUR and nothing much else matters. The interesting price action Wednesday is in the euro/British pound (EUR/GBP) where even with the EUR going nowhere, GBP continues to weaken. The EUR is at 8-year highs as Brexit plans suggest the next key step-down for PM May will be regarding the European Court role in UK law – as the BBC reports the UK must keep “half an eye” on the ECJ. The point is that both NZD and GBP are moving overnight because of politics and it again highlights that force against the mood stabilizing stories of a global coordinated economic recovery. 

Markets don’t care much about anything until after they hear from Janet Yellen and Mario Draghi in Jackson Hole. Until then, relish the price movements that seem to break out of the every narrowing walls of prices that seem to force less trading and more uncertainty. Many want to think this all changes and we go back to chasing yield and selling volatility in September – but the reality may be that politics only get worse from the US debt ceiling debate to the German and New Zealand Elections to the return of Brexit negotiations. 

The chart of the day is for EUR/GBP believers in the elliptical with .9256 the Bull channel top.

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