Watching US Dollar, Wondering If Bonds Are at a Breaking Point

12/20/2017 11:22 am EST

Focus: MARKETS

Robert Savage

Partner & CEO, CCTrack Solutions

Markets are in for a quietly boring day awaiting evidence that Trump is Santa and not Scrooge to buy equities. We’re all watching the USD and wondering if bonds are at a breaking point, equities higher, when will it move back up, asks Bob Savage,CEO of Track Research.

Reading price action overnight is a bit like reading tea leaves from the bottom of your cup.

This is a skeptical market filled with inconsistencies making trends less obviously supported.

The tax reform obsession is coming to an end and without that cover, markets need to revert to other stories for direction.

The higher bond yields that hit markets Tuesday softened global equities and continues to do so today except in the US. The higher fears of inflation are part of the story and that finds support in higher commodities. The oil markets are up again along with most other commodities – leaving today’s EIA report important.

However, the U.S. dollar (USD/EUR) isn’t higher despite equities up, bond yields higher and growth outlooks more robust. This makes for some drama on the day and the effort of reading tea leaves perhaps less futile.

The EUR isn’t far from a 1.1880-1.1950 break out with the obvious risk for 1.20 then 1.23 and so on into 1Q 2018 enticing. This despite the political drama ahead in Spain tomorrow with the Catalan vote, in Italy in March and the ongoing risk of not having a German government throughout all of that – it’s 89 days and counting for Merkel’s coalition-building exercise.


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The point is that markets aren’t watching rates for forex but real rates and the likely shift of policy in the ECB to hawk from dove, that puts the ECB Wiedmann speech today into focus as a key driver.

The rest of the world didn’t have much news overnight – New Zealand saw a better C/A deficit and a worsening trade position despite selling tons of butter to China.

The Australian LEI was better but still below the highs of the year. The Riksbank was unchanged but moved forward its redemption buying spooking markets a bit.

The German PPI was lower but tracking energy as usual while the UK CBI retail trends were stronger than feared but still off from the Black Friday induced buying sprees.

Markets are settling in for a quietly boring day waiting for further evidence that Trump is Santa and not Scrooge to buy equities. Until then we are all watching the USD and wondering if bonds are at a breaking point, equities higher, when will it move back up?

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