View from London: Stock Rally, Bond Fears, Noise in Forex

11/01/2017 11:44 am EST

Focus: CURRENCIES

Robert Savage

Partner & CEO, CCTrack Solutions

Focus is on the FOMC sounding hawkish today because the economy is doing better, on the Congress march to tax reform, on Trump’s choice for leading the FOMC next, and on the rate differentials driving divergences, writes Bob Savage, CEO of Track Research Wednesday.

The New York City terror attack near the market-close wasn’t a trick nor a treat, but a sad reminder of the world we live in and the evil we all endure. Our thoughts and prayers go out to the families of the lost and injured. The U.S. investigation will be fast and furious and likely add to more isolationist measures from the Trump administration as “lone-wolf” attacks don’t adequately explain the proliferation of using vehicles to kill people everywhere.

The sad silver-lining is in the ability for this market to ignore this event like it has ignored similar sad stories from France, Germany, the UK, and the rest of the world.

From now until Christmas, markets generally worry about year-end rather than 2018 beginnings.

The forces that have shaped 2017 are unlikely to change much, and so, the rally up in global equities, the fear about bonds, the noise in forex with U.S. dollar (USD/EUR) bid and the sharp gains in oil, all are in play as we start November and celebrate All Saints.


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The fear of a painful ending remains central to holding back from the trends and given the overnight news, perhaps justified, with the IMF warning on China’s excessive reliance on debt, as Japan’s Abe gets officially re-elected prime minister restarting the debate on rewriting the pacifist constitution.

The global PMI reports were strong – from Japan, China to UK, but there was one part that stands out the notably drop in confidence looking forward. Cost pressures eating margins also stand out.

The joys that have supported the market outweigh the fears and so the new ending isn’t likely to be painful or scary but more of the same.

Focus is on the FOMC sounding hawkish today because the economy is doing better, on the Congress march to tax reform, on Trump’s choice for leading the FOMC next, and on the rate differentials driving divergences and opportunities everywhere.

The Japanese yen (JPY/USD) rally back over 114 today stands out as the risk-barometer that matters as its still correlated to stocks and to inflation views. A break over 114.50 may mean we see the 2.42% 10-year U.S. rates again and S&P 500 (SPX) at new record highs.

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