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Market Flip-Flops Are Good And Easy To Win

Published 07/03/2018, 12:38
Updated 14/12/2017, 10:25

Cohn was no lynchpin

It's been a flip-floppy week and ultimately, for markets, that's healthy. Investors are alert; more reactive; habituating to increased volatility. Hence we’re not convinced the knee-jerk sell-off on news of White House chief economic adviser Gary Cohn was enough in itself to trigger sustained gyrations.

The 400-point Dow futures slide last night suggests he was a lynchpin tethering Trumpian tendencies to something recognisably market-aware. But Cohn's star has been on the wane for many months. None too hidden divergence was evident from the president's presumed stance on everything from globalisation, Charlottesville, and yes, tariffs. Being passed over as a FRB appointee made Cohn's departure an exit waiting to happen all the more. It finally happening after the cancellation of a meeting Cohn arranged between Trump and U.S. and heavy corporate users of steel and aluminium is consistent in the context we suspect, and makes less sense on its own.

Dollar fade is patchy

To be sure, the incoherence of the White House’s tariff push accounts for a large part of this week’s reversal.

Consumers as well as industries would be in the firing line from retaliation and other impacts, including an even bigger budget deficit. Hence the dollar’s fade all the way back to the verge of Friday’s 16-month lows against the yen. Some of that move may be anticipating some Fed-predicated pressure; the possibility that monetary policy could adjust should international trade fallout bring clear and present danger. Again, the threshold for a Fed deviation from its exit strategy will be high and a long-time coming. Something similar could be said about the Bank of Canada, which will announce policy on Wednesday, though the dollar retaking half of this week’s CAD gains points to worry that BoC could reference North American trade matters in dovish commentary.

The mixed dollar complex is completed by 10-year Treasurys yields continuing to hover near 2.85% support. In other words, government debt buyers aren’t pricing anything definitive so far.

Labour data returns to the fore

Uncertainty, the market’s chief enemy, is real enough. Pro-tariff trade adviser Peter Navarro is about to embark on several further weeks of NAFTA negotiations before an eighth round in April. Recent Trump comments linking tariff announcements to talks and a potential lighter regime for NAFTA members point in multiple directions, and hence none.

Macroeconomic aspects that are easier to get a handle on are likely to come back to the forefront of market attention in coming days, bringing their own threats. Chiefly, if wage readings in Friday’s U.S. employment report overshoot again (monthly earnings growth is forecast to tick lower) a repeat performance of February’s volatility has more than fair probability. The problematic ADP curtain raiser will come out at 1.15pm GMT on Wednesday. Unreliability has discounted the importance of ADP’s survey, though in the wake of poor job updates in Tuesday’s service-sector ISM release, a shortfall versus ADP consensus of 195,000 could fuel further minor volatility.

Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient.

Any references to historical price movements or levels is informational based on our analysis and we do not represent or warrant that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, the author does not guarantee its accuracy or completeness, nor does the author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

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