The running of the bulls in equities (SPX) grabs headlines overnight with China up 2.5% leading the story. Three other stories traders are watching today. We may learn something from Brexit and trading headlines, writes Bob Savage Friday.
Perhaps the more important story is about the ground underneath as the weaker economic data from flash PMI reports seems at odds with the U.S. growth story. Similarly, the U.S. rate differentials clash with the weaker dollar (USD).
Nevertheless, emerging markets are mixed as the all-clear signal on trade fears continues with Chinese yuan (CNY) and the China charm offense winning in Asia but not elsewhere. China stimulus talk to offset the U.S. tariffs remains central to the suspension of disbelief about rates, growth or other stories.
Those other stories are worth highlighting:
1) Brexit. The EU summit in Austria was inconclusive but with the leaders unanimously voting down the UK PM May’s “Chequers Deal.” The focus on French President Macron as a deal maker into October will be intense.
2) BOJ Noise. The BOJ cut its buying of bonds over 25-years today from Y60 billion to Y50 billion – and this led to a sharp jump in yields and steeper curve. Higher bond volatility is notable everywhere.
3) Credit. The WSJ article on junk bonds rising as a share of the overall market is worth considering given the sharp uptick in rates this week in the U.S.
When you mix these stories together they clash with the present stampede of bullishness but they also explain the subtle turn of EM in EMEA down with Turkey and South Africa still under the kosh – giving back much of yesterday’s gains.
Markets are fickle and like any stampede the direction of which seems more serpentine than in a straight line. Witness the rise and fall of British pound (GBP) this week in the G10. We may learn something from Brexit and trading headlines – namely that uncertainty hurts.
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