The Tape Will Tell You Today If Markets Believe Anything Is Different

03/07/2018 12:12 pm EST

Focus: CURRENCIES

Robert Savage

Partner & CEO, CCTrack Solutions

Europe was able to piece together a rally back in equities and the USD. This matters but it’s going to be about U.S. rates and the cost of money that likely reflects fear vs. greed most clearly in trading today, writes Bob Savage, CEO of Track Research Wednesday.

If you ask Trump about tariffs he would say this is a tool for better trade deals. If you ask him about his staff and the turmoil, he would say conflict helps him make better decisions.

This logic was the end for Gary Cohn and the beginning for Peter Navarro. In headline speak, a moderate fall for a hard-line rise.

This is a bit too simple and likely to get traders into trouble as selling on unknown political events is usually followed by buying over the last nine years as easy money fills the gap – it’s just a question of time – for this reaction and for trade chaos to turn into a rational deal.

Is this time different? Economic warfare as a term comes from the Cold War and a rethink of the Reagan deficits as the Soviet Union strained to catch up in an arms race neither could afford.

Some would say the Putin is vainly attempting to resurrect those days as his latest move in the UK to poison a spy shows. Russia isn’t in the same league as Europe or China but would like to be invited to the party.

Perhaps the Trump trade war will be the same for China. The threat of section 301 tariffs on a host of Chinese products hangs out there. But I doubt anyone is thinking about it this way today. Rather, this is about politics just not being quantifiable.

The global growth before the tariff talk and the Italian election was just fine, perhaps, too good, inspiring talk of monetary doves turning to hawks, witness the Brainard speech Tuesday night.

The Trump logic on North Korea is another story – to consider as the bluster of nuclear war and plenty of sanctions brings an offer to talk – something that may at worst be a stall for time to finish the job or genuine – we just don’t know. That is the key lesson overnight – you just don’t know if we are starting a trade war that will kill the global recovery or not.

We don’t know if moderates in the White House are all gone. We don’t know if North Korea is sincere about wanting to talk peace.

So the tape will tell you today if markets believe anything is different. The fact that Europe was able to piece together a rally back in equities and the U.S. dollar/euro (USD/EUR) matters but it’s going to be about U.S. rates and the cost of money that likely reflects fear vs. greed most clearly.

That is the tape to focus on as it’s the market barometer for the real cost of buying time.

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