As we said earlier, “not a creature was stirring” over night.
Or, put differently, “it’s quiet out there.” “Maybe too quiet.”
Former FX trader Richard Breslow agrees and he seems to be feeling a bit “punchy” on Thursday morning (to quote one of his missives from last month).
Below, find his latest and do note the discussion about the dollar and how the Fed/administration views a weaker greenback. If the plunging dollar was the straw that broke the back of the models on Tuesday, then we should be concerned that failure to pass the healthcare bill will lead to further weakness in the greenback and thus further pressure on the crowded reflation trade. That should worry both the Fed and the White House. Then again, as Breslow notes:
Do you think Trump, or the Fed for that matter, are sad that the dollar has returned to election-eve levels? He thinks no one’s willing to mess with him and the Fed will feel more comfortable with inflation expectations and rate hikes. Boy, we taught them a lesson.
Touché Breslow. Touché.
More below.
Via Bloomberg
Markets have been in a holding pattern so far today. Things look calm. Maybe it’s fair to say, too calm. And that’s all right, even sensible. The things that caused Tuesday’s upset, whatever they may have been, haven’t abated. On the other hand, the damage done was insignificant, to say the least. There certainly aren’t any stories making the rounds about some unnamed hedge fund that got killed. And we’ve been mercifully spared the “how much wealth was destroyed” pabulum
- So we got the mini sell-off and are none the wiser. The people with strong views and money in the game are unlikely to have changed their minds on much. We live in hope that later today Chair Yellen or the U.S. Congress will enlighten us. And that will probably be true all the way through to tomorrow
- Before concluding that you know where this is all going, you need to make sense of where we are now. And keep reminding yourself that, perhaps equities aside, there’s nothing zero- sum about where asset prices trade. Just ask issuers versus yield hunters as rates move. Let alone trade negotiators when currencies are in play
- When markets move, different constituencies won’t have the same reaction functions. It’s been a popular conceit to trot out the Trump trades are dead declarations. Therefore he’s been repudiated. Maybe, but Trump’s trades aren’t. Do you think he, or the Fed for that matter, are sad that the dollar has returned to election-eve levels? He thinks no one’s willing to mess with him and the Fed will feel more comfortable with inflation expectations and rate hikes. Boy, we taught them a lesson
- The fact that Treasury yields haven’t blown sky-high may disappoint leveraged traders. But for every skeptic about fiscal stimulus and the dot plots, there are those who say markets are stable, liquid and there’s plenty of appetite for new issues. Pretty cool after two rate hikes
- As for equities, they look bad on the shortest of charts. Need to fall further to look ill in any meaningful way. But that’s where all the bears supposedly want to buy. Watch, when it gets down there, all the pundits will be selling the lows
- Just don’t forget that all those market podcasters using The Doors’ The End as background music were likely telling you the market was going to implode on the election news. Still 10 percent lower from here
