Risk: Bull Run Fizzles. Reward: Stay the Course this Week.

01/04/2018 12:39 pm EST

Focus: CURRENCIES

Robert Savage

Partner & CEO, CCTrack Solutions

Markets today are likely to be watching for the real bomb cyclone effects on trading. Fears are that the bull run in equities that has started the week fizzles should rates drag past 2.54% in 10Y, writes Bob Savage, CEO of Track Research.

On watch to see how weather matters to markets as other stories remain less important. The US “bomb cyclone” weather event on the East Coast is big, delivering a messy storm with lots of snow as the sudden drop in atmospheric pressure explodes with warm air meeting cold mixing with the rotation of the earth to create a hurricane like storm what New Englanders know as “Nor’Easters,” but that isn’t as scary or descriptive of the pain delivered.

The release of some US economic data – like weekly claims – is likely to be delayed today because of the storm.

Dow Jones Industrial Average tops 25,000 for first time.

There were other bangs Wednesday night. The 3% rise in the Nikkei merits attention, this was a bang rather than fizzle to start 2018 in Japan.

The shift from 68% to 76% chance for a Fed March rate hike is a bang for an otherwise dull market in U.S. rates. This reflects the ongoing better growth story with 3-3.5% GDP in 1Q penciled in along with the slightly more hawkish FOMC minutes.

The bang surprise today, is in the fizzle of the U.S. dollar (USD/EUR), weaker against commodity currencies, the EUR and British pound (USD/GBP), while only modestly gaining on the Japanese yen (JPY/USD).

The economic data from global Service PMI reports is a bang – with a few notable points – that input prices are higher almost everywhere but output prices aren’t – suggesting a profit margin squeeze is ongoing for corporates.

This balances against better growth with Europe 4Q seen at 0.8% q/q, UK at 0.5% q/q and Japan at 0.3%.

The US Service ISM comes Friday and it’s just not clear what 4Q brings as many see it 3-3.5% but for the weather effects.

Economic activity in the U.S. manufacturing sector expanded in December.

Markets today are likely to be watching for the real bomb cyclone effects on trading with fears that the bull run in equities that has started the week fizzles should rates drag past 2.54% in 10Y. That maybe the risk but the reward is in holding the course and staying warm.

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