E Markets: Wild Hunts

The rhythm of markets is like the tides of the ocean. The waves mix against the seasons creates the illusion of progress as prices bounce back with Oil up 4%, global equities up nearly 2% and the USD down. This is the power of the Trump/Xi truce and the Russia/Saudi high five – both events are acts of faith – like the yuletide log burning long enough to see the days longer, hoping for just a bit more sun in the future to beat back the darkness of geopolitical chaos. We are in the wild hunt stage of risk where the bounce needs to beat back the down trends to convince us all this isn’t too much G20 food and drink. The risk is we see the other headlines from the weekend nag us back to reality: 

  • Spain’s PM Sanchez under pressure as Andalusia votes in a far-right party. The Socialists may lose control of the southern region after the center-right Ciudadanos party on Monday ruled out any coalition with them after an inconclusive election in which far-right Vox won 12 seats in the 109-seat parliament.
  • France President Macron looks for a solutions to “yellow-vest” crisis. After the worst riots in Paris since 1968, the President and PM are trying to defuse further protests. The unrest is hitting the economy: hotel reservations are down, retailers are suffering, unsettling investors, and Total said some of its filling stations were running dry. PM Philippe plans to meet with some leaders of the movement Tuesday afternoon. The WSJ reports Macron is considering an emergency crackdown
  • UK PM May vows to still have the job in 2-weeks. “I will still have a job in two weeks’ time,” May said in an interview with ITV television when asked if she would quit if she lost the vote. “My job is making sure that we do what the public asked us to: we leave the EU but we do it in a way that’s good for them.” May also said there would be no changes to the Brexit plan she has hammered out with other EU leaders.

For many, the CNY is the currency barometer of choice as it captures the noise over trade but the oil story reflects most loudly in INR which is having a very bad day. The best correlation on the day maybe in the EUR, which captures the political risks listed above on one side and the hope for USD alternatives on the other. The EUR has a long way to bounce to prove this isn’t just a wild hunt. Watching 1.14 and 1.15 for verification of today’s yuletide mood being more than a dream.

Question for the Day: Will this bounce hold? The drop in confidence in global growth has been blamed on US trade policy, US rate hike policy and politics globally. The role of higher energy prices in tightening profit margins and hitting consumers is also a factor but one that reversed in November. Many see today as the usual new month optimism wrapped up in a Christmas package for the year-end rally seasonals. The chart from adamgrimes.com is worth considering here. 

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