As I noted earlier on Friday, this week provided nothing in the way of clarity for markets that are strugglingly mightily to make sense of looming political and policy risks.
Trump’s presser was a clinic in how not to reassure a nervous nation and the political news out of France overnight only served to exacerbate fears that Marine Le Pen may indeed pull off an electoral upset that would change the face of the EU forever (and that’s assuming the entire thing wouldn’t simply fall apart on a “Frexit”).
Janet Yellen’s hawkish Senate testimony and upbeat CPI data probably should have added fuel to the reflation meme, but it still feels like we’re treading water in terms of getting a read on where we’ll be six months from now. This despite record-er-er highs for stocks and still suppressed vol.
Here with some further color on all of this is former FX trader turned Bloomberg contributor Richard Breslow.
Via Bloomberg’s Richard Breslow
In a week that has tried hard to express a view and provide some clarity on next steps, markets are limping into Friday more conflicted than ever. Despite the lack of breakouts and narrow, if violent ranges in so many assets, I’m sure these current levels aren’t stable. Volatile prices, ultimately signifying nothing, aren’t implying equilibrium. Rather, big, sometimes digital, risks in both directions.
- Every time we’ve attempted to establish new trends, the break-out traders get tapped on the shoulder and asked the “Yeah, but what if?” question. And so far this year the answer hasn’t been, “So what?” and we’ve fallen back into familiar ranges
- Chair Yellen was hawkish. The ECB minutes went as far from giving a taper message as they could. And EUR/USD went to the high of the week. No surprise, as Europe started its trading day, the currency pair had all of a 16 pip range on the day. Longs got stopped by Wednesday and the shorts tortured on Thursday
- By putting March back into play, the Fed is merely righting a wrong from the February statement of only two weeks ago. Not a tour de force of forecasting expertise. Subject to events they will or won’t act. That’s what they should do — always. What she did accomplish was making the point that they won’t be hostage to what is happening elsewhere in Washington. Does anyone believe that? And is this seeming volte-face enough to build the foundation for a sustained dollar upmove?
- After Yellen and U.S. CPI, yesterday’s Treasury 30-year TIPS auction should have gone great. Or at least cleanly. But the 4.8bp tail told another story. TIPS have been running higher and real money presumably decided that the new information just wasn’t enough to justify the WI price. Extrapolation, meet reality check
- The euro took heart in the “whatever it takes” messaging behind the capital key discussion in the ECB minutes. Peripheral spreads snapped tighter. But I can’t help wondering if this will merely dissuade prudent investors from hedging some of the European political risk that has us so worried. A market with no hedges is by definition far more vulnerable
- Buridan’s ass, meet Scylla and Charybdis