Waiting on war

Whatever happened to fundamentals? War, trade, and whatever else Trump tweets are drowning out everything else in markets. The pound was the top performer Thursday while the Swiss franc lagged. Chinese trade balance is due up next. The EURGBP trade (opened over 6 mths ago) was stopped out, leaving 5 trades in the green and 2 in the red. Do not forget Ashraf's webinar on Tuesday about Trends and cycles in Dax and US dollar.

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Markets turned Thursday after Trump tweeted that an attack against Syria could happen very soon or not so soon at all. Leaks from the White House suggested he hadn't made up his mind and other suggested officials were considering 8 targets, including air bases.

For now, the market has reverted to a wait-and-see mode by giving back the gains in gold and Treasuries. The stock market climbed as well but earnings begin Friday and that will be a driver going forward.

As for FX, fundamentals briefly grabbed the spotlight after the FOMC minutes but there remains a major disconnect between what the Fed says it will do and what the market thinks is coming. At some point there will be a reckoning.

ECB policymakers may also have to recognize the recent disappointment in data. Eurozone industrial production fell 0.8% in February, far worse than the +0.1% reading expected. It's part of a pattern that has pushed Citi's economic surprise index for the eurozone to -89, which is the lowest since 2011.

The ECB is in a tough spot because there is a heavily-entrenched bloc that will demand an end to QE and shift to something closer to neutral, but it's possible that the stronger euro is hitting the economy harder than expected and that structural headwinds will continue to undermine growth. The euro dipped down to 1.2300 from 1.2360 after the data but rebounded to 1.2330.

Looking ahead, Chinese trade data threatens to highlight imbalances once again. Imports are expected up 7.5% y/y with exports forecast to rise 8.0% and a surplus of CNY181B.