There’s uncertainty today and the knock-on effects usually seen by geopolitical doubt – the fact that JPY is weaker, the CBOE S&P Volatility Index (VIX) is below 15% for three days and seems set for 12%, the risk-on in equities holds, writes Bob Savage Wednesday.

This all suggests knock-ons are not knock-outs for positions today.

Deflation was driven in the last 30 years by knock-offs (cheaper goods made in emerging markets) and has lifted in 2018 by knock-on effects. Knock on wood is part of German folklore where the supernatural live in trees.

The return of a trend to equities and to USD is at odds with March and most of April trading. The flip-flop seems important today as the world watches inflation from higher oil prices and global trade tensions drive up global rates with the USD benefiting the most.

The U.S. pullout from the Iranian nuclear pact was expected and delivered. The knock-on effect to U.S. allies and global trade is less clear. Global companies that invested in Iran in the last year are in limbo.

Oil sold off into the event and rallied after it. Fear of a cold war escalation between Israel and Iran in Syria rises as does Saudi and Iran in Yemen.

The USD is stronger tracking U.S. rates higher into a 10-year $25 billion sale today. The EM world remains unhappy – though off record low forex levels – as China Xi and Trump phone call and push for ongoing trade talks, as Argentina asks the IMF for help talk of $30 billion flexible line, as Turkey’s Erdogan summons economic aides to meet.

The Turkish lira (TRY) reversed from 4.3735 record lows back to 4.28. The Malaysian elections today are also worth watching with PM Najib slamming Whats App messages about voting issues as fake news.

Throw in a shift to rate hikes expected in Korea and Taiwan reflecting inflation fears and you have the basis for a slowdown in the USD gains. This has put the broader G7 USD back bid – at least until it traded in Europe – with Japanese yen (JPY) weakness returning. The Japan wage gains were notable and open up room for hope while UK retail sales, French IP, flat Swedish CPIF and weaker Italian retail sales all leave a squishy backdrop to the higher rates in Europe story – led by another technically uncovered German auction and ongoing Italian political debates as to how to form a government.

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