Lulls are the space between boredom and being overwhelmed. The emotional markets of the last few weeks are resting today with those of bearish outlook warning it’s the calm before the storm. While geopolitical fears lull themselves back to sleep, politics remain the risk changer for the week, writes Bob Savage Monday.
However, not all political news matters to markets, witness the UK Brexit Secretary Davis resigned and the British pound (GPB/USD) higher, Gilts lower. Most watch to see if this triggers a Tory leadership vote again.
Risk-on sentiment prevails also despite the North Korea bad mouthing the latest talks with US Secretary of State Pompeo as pushing denuclearization with a “gangster-like mindset.”
The ECB next president race continues to matter and the WSJ report notes that “the ECB recently received legal advice that a French member of its executive board, Benoit Coeure, could be elevated to president.” This is important in the context of today given his talk Sunday and his view that the trade-war challenge isn’t shaking the ECB exit path ahead. Read his comments for more clarity.
This is important in driving up the euro (EUR) today and it's important in continuing the new view that trade wars are static and priced for now leaving the forward guidance games for central bankers to push prices back to risk-on and lift investor moods. The economic data ahead matters accordingly. There was little to move markets Sunday night with Japan regional BOJ reporting flat 2Q growth and Germany reporting a surge in May exports. Good enough for now.
Lulls are time for rest not time for acceleration, which means we are all watching for any upside breakouts in stocks or breakdowns in bonds to matter. The correlation of risk-on to U.S. dollar (EUR/USD) remains in play with geopolitics the noisemaker and data the calming balm soothing investors back to summer rally mode. This puts today’s EUR rally into key focus and perhaps one that ECB Draghi will be watching ahead of his speech today. The 55-day m.a. break of 1.1774 opens 1.1854 May 16 highs again.
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