Too much Complacency?

The last-minute rally in stocks on Friday led to an 11th consecutive record high in the DJIA in a market that's flashing too many warning signs to ignore. The pound is lower to start the week on talk of a fresh Scottish referendum. We look at the rising optimism on AUD and CAD in the CFTC positioning report. The chart below indicates the highest and weakest performers against the USD since the start of Monday's Asia-Pacific trade.

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Dual narratives of populist optimism and political uncertainty are sending dual signals in the market. US yields are threatening to fall to the lowest since November while stocks run away higher. The enormous last-second bid in US equities Friday put the Dow on the longest winning streak singe Reagan.

Measures of stock market sentiment, volatility and insider selling are screaming that the market is overly complacent. The optimism is largely surrounding hope Trump will deliver on tax reform and there is good basis to believe corporate taxes, will be lowered but other signs show he has a tough road ahead. Given the global uncertainty and lack of anything concrete from the administration and likelihood of jitters ahead of Tuesday's address to Congress, the level of complacency is far too high.

In the UK, The Times of London reports that Theresa May is preparing Scotland to potentially announce a referendum in March. That's a cold, calculated move on independence just as the UK gets set to invoke Article 50.

The pound fell 50 pips at the open and is testing support in the 1.2400/1.2383 zone. Another vote would hang over the pound like a guillotine but in the day ahead the trade will be a denial or confirmation. A thrust of selling at the London open would test some recent support levels and could open the way for a run to the 2017 lows.