It’s pretty quiet on Monday morning, with joint Saudi/Russia comments on extending crude production cuts dominating a tape that should probably be a lot more concerned with North Korea lobbing missiles into the ocean and/or the constitutional crisis unfolding in the US.
But as everyone knows, markets are ignoring geopolitical uncertainty like never before. Indeed, this market is even ignoring economic policy uncertainty (so, something that has a direct effect on asset prices) like never before:
To get an idea of what I mean, read this quote from SocGen’s Kit Juckes:
The weekend news – softer industrial production, Capex and retail sales in China, higher oil prices as Saudi Arabia and Russia agree that output cuts should be extended through Q1 2018, a North Korean ballistic missile test – sees us start in mild risk-friendly tone.
Yes, the engine of global growth and trade rolling over and more ballistic missile tests from a despotic hermit regime “sees us start in mild risk-friendly tone.” I mean, Juckes is correct, but that doesn’t make it any less surreal.
In any event, here are some other excerpts from the note to help get you up to speed.
The shadow of Friday’s softer US CPI and retail sales data hangs over markets this morning with 10-year Treasuries at 2.33%. 10year TIIPS are at 47bp and have now recorded three peaks since November at 0.7%, 0.6% and 0.5%. The corresponding levels for DXY are 103.2, 102.2 and 99.7. The inability of the dollar to gain more from that last move up in yields reflects the changing global landscape as recovery elsewhere drives rates and yields a bit higher. With a thin US data calendar (highlight housing starts and industrial production tomorrow), there’s not much to propel yields or the dollar back up. That December DXY high looks pretty safe. There’s a good chance that we see EUR/USD break 1.10 again this week.,
The weekend news – softer industrial production, Capex and retail sales in China, higher oil prices as Saudi Arabia and Russia agree that output cuts should be extended through Q1 2018, a North Korean ballistic missile test – sees us start in mild risk-friendly tone, with Asian currencies mostly slightly higher. Oil prices are up; copper iron ore prices are slightly higher too. All of which, added to the softer US data and the sense that while a June Fed rate hike is very likely, that will still only a step on a journey to a very low eventual peak, just underpins the low volatility, yield-hunting regime in which we find ourselves. Our EM team remain long TRY ahead of President Trump’s meeting with president Erdogan; long ZAR ahead of the court ruling on whether a no-confidence motion against President Zuma can be carried out by secret ballot, and long MXN
In G10 the risk-friendly backdrop keeps us short JPY, against SEK and EUR. The CDUs victory in North-Rhine-Westphalia has little market impact but supports stability as President Macron takes office. The 10year Treasury/Bund spread is down to 193bp, steadily correcting the move seen since Donald Trump won the US Presidential election. EUR/JPY has broken 124 though the 10year Bund/JGB spread needs to get through 40bp to rubber-stamp that move. We get Eurozone Q1 GDP data tomorrow (0.5% q/q), ZEW (exp 21.3 vs. 19.5).
And then this, for the Walker Texas Ranger fans…