Intraday Market Thoughts

Growth Trumps Trade

by Adam Button
Sep 19, 2018 14:57

The market's reaction to US tariffs and China's retaliation on Tuesday was remarkably positive as risk trades pushed higher at the expense of the Japanese yen and the Swiss franc. The Australian dollar was (and remains today) the top performer while JPY and CHF lag. The market reaction is a combination of eleveated traders' expectations explained here and the resilience of the global economy is. The macro data of the day is the upside surprise in UK inflation, particularly the core CPI breaking the BoE's target to hit 2.1%.

Click To Enlarge
Growth Trumps Trade - Spx Usdchf Usdcad Weekly Sep 19 2018 (Chart 1)

Global equity markets are again rallying in concert. A positive reaction to tariffs and a trade war between the two largest economies would have been unthinkable a few years ago but it emphasizes how solid global markets are.

We often talk about news being the best measure of a market and if markets can't be damaged by a trade war, then what can damage them. The nature of all news is that it's worrisome. If you own a stock, a bond or a currency you have to be on guard against the risks. What we don't talk about enough is that things are getting better.

Even recent comments from ECB and BOE were upbeat despite looming problems to both regions. The yield curve is worrisome but it hasn't inverted yet and even if it does, you can't bet on that alone.  Economic data in most of the world is solid with FX traders focusing on relative strength. This may be another explanation to the USD's retreat.

Another sign is the relentless march of money into new ideas. Last year it was cryptocurrencies and at the moment it's marijuana stocks. The animal spirits are alive and it will eventually end in pain but in the words of Chuck Prince, “As long as the music is playing, you've got to get up and dance.”

Act Exp Prev GMT
CPI (y/y)
2.7% 2.4% 2.5% Sep 19 8:30

Latest IMTs