View from London: Global Focus Shifts to US, Emerging Markets
09/25/2017 2:09 pm EST
The move up or down in U.S. bonds was important to the modest USD gains last week and it likely remains the key for the week ahead. The 10Y 2.20%-2.33% range looks important for setting the direction into October, writes Bob Savage, CEO of Track Research in his Monday commentary.
The results of the German and New Zealand elections are both near expectations but insufficient to make politics simple and so both the euro (EUR/USD) and New Zealand dollar (NZD/USD) are weaker as coalition building for new governments will take more time than the market wants and leads to less certain fiscal and reform outcomes.
The National and Labour parties are in coalition talks in New Zealand while in Germany, Merkel will likely move for a 4-party coalition.
The overnight session also brought another election risk to the fore as Japan’s Abe calls a snap election for October 22 as expected but Tokyo Governor Koike vows to start a new national political party in opposition. Abe promises to compile a Y2trn economic package with free high school and university education for low-income families.
As for geopolitics, President Trump added North Korea to one of eight countries on the travel ban list, but there were no other incidents from the weekend war of words with Kim.
The other war for Trump was at home with the NFL as many players and team owners protested.
This week isn’t supposed to be about politics as much as month-end rebalancing and rotations along with a host of key economic data – with inflation and growth the main focus.
Overnight, the flash Japan Manufacturing PMI wasn’t enough to matter, but the weaker German IFO added to the worries about mood and how rougher politics matter. The growth outlook for a 4Q has lost some support.
Global coordinated growth remains intact but China, Japan and Germany are all off their best and so the focus shifts to the U.S. and EM to make up slack. This leaves the barometer for risk over politics more rates than forex.
The move up or down in U.S. bonds was important to the modest USD gains last week and it likely remains the key for the week ahead. The 10Y 2.20%-2.33% range looks important for setting the direction into October.