“I’m The One Who Got Us Into This Mess,” A Brent Death Cross, And “The Day Before Tomorrow”

Well, it was quiet overnight as global markets looked to shake off what everyone hopes was a fleeting tech rout and as traders and investors hunkered down before the Fed.

Tech stocks in Europe, which took a nasty tumble on Monday following the Friday FAAMG bloodbath on Wall Street, rebounded and as of earlier this morning were poised for their biggest gain in more than a month. In early European trading, tech was the most active, up 0.8% on 167% 30-day average volume. Here’s a snapshot that gives you some global context:

The pound rose, snapping a three-day losing streak against the dollar with sentiment buoyed by annual inflation, which jumped to 2.9% in May from 2.7% a month earlier.

As Bloomberg notes, cable “was trading higher before the release of the data after Prime Minister Theresa May managed to survive a rebellion from her Conservative lawmakers by pledging to consult the party more over policy and vowing to seek a national consensus on Brexit.” Here’s a bit more color that’s pretty amusing:

U.K. Prime Minister Theresa May bought herself a stay of execution by apologizing to her own lawmakers for the election debacle as she prepared to meet Northern Ireland’s Democratic Unionists to secure the votes needed to prop up her minority government.

She told Conservative lawmakers that she takes full responsibility for the disastrous result, which cost the party its majority, and will stay on only for as long as she’s wanted. She also signaled she’s willing to rethink her approach to Brexit.

“I’m the person who got us into this mess and I’m the one who will get us out of it,” May said, according to two lawmakers who were present.

Still, folks are understandably skeptical. “The market is making a mistake in pricing in a higher rate-hike probability,” Thu Lan Nguyen, a currency strategist at Commerzbank AG in Frankfurt said overnight, adding that “with higher political risks, and EU negotiations further postponed, I think the probability of a negative scenario for the British economy has increased, which will force the BOE to keep a more expansionary monetary policy for some time.”

Crude rose for a third day, although as a reminder, last week marked the third consecutive week of declines and really, it’s been all downhill since the OPEC “sell the news moment.” We’ll get API data later today as usual and this week’s print(s) should be particularly interesting.

Here’s Norbert Ruecker, head of commodities research at Julius Baer Group Ltd. in Zurich to paraphrase the same narrative everyone else has been parroting for months about the epic (and largely futile) struggle to balance the market: “The global economic backdrop is very solid, and we have high and solid demand levels. Still we don’t see these abundant oil inventories disappearing any time soon and so prices will keep shuttling around current levels, in the high $40s rather than the low $50s.”

Meanwhile, Brent just formed a death cross:

Here’s SocGen’s Kit Juckes on “the day before tomorrow”:

It’s all about tomorrow: Today sees the start of a 2-day FOMC meeting which will deliver its verdict after the US has released CPI and retail sales figures tomorrow. The Fed Funds futures market prices a 25bp rate hike with a strong degree of confidence, but it’s a lot less sure about what happens after that. Another 18bp hike is priced in for the end of the year, then 26bp for 2018 as a whole and 18bp in 2019. The pricing of end-2019 rates has come down by 25bp since the start of the year, even as pricing for 2017 has risen. The Fed’s insouciance about market pricing for the peak of the rate cycle, along with the fall in wage growth and inflation since the start of the year, is behind both the dollar’s relative softness, and markets’ overall buoyancy. A ‘dovish hike’ would sustain both these trends, while anything that moves the end-2019 rate expectation upwards is likely to help the dollar and sound (minor) alarms for EMFX investors