E Markets: Noise

One man’s music is another man’s noise – a derivation of Lucretius – “quod ali cibus est aliis fuat acre venenum.” Music and food maybe the required mix ahead of today’s trading in the US. Market moves on headlines about trade dominated overnight. Bloomberg reported Monday that more tariffs were being prepared if the Xi meetings at the G20 failed, then Fox reported that Trump predicted a “great deal” with China on trade and Asian shares rallied accordingly, helping the S&P 500 futures overnight, but the CNY trades over 6.97 – highest in over a decade – and the headline news battle over Xi/Trump meetings and more tariffs undermines European shares along with the usual suspects. Some will point to the unpleasant reality of the European data today as a key reason for the noise not becoming music – as EU GDP slips to 4-year lows while German flash HICP jumps to 2.5% – leaving the ECB little room to deviate from course and protect markets. The love-affair with central bankers has ended and with it the low volatility. This brings out all sorts of questions about what is the safe-haven and the USD continues to come out on top for now. The correlation of USD to S&P500 has been high with JPY the traditional focus but EM this year has also been part of the story. The fact that EM currencies are bouncing on China trade deal hopes and CNY is weaker with the EUR and JPY matters today and it makes watching the USD index and a break of 97 important for the 7.00 CNY risk and what that means to EM and to risk moods for tomorrow. Of course, watching the mess of screens and waiting for a signal will have more than its fair share of noise. 

Question for the Day: Will time cure all ills? Markets look tired of selling equities but there are three charts that seem most interesting to consider ahead of the US ISM and jobs report later this week and given the month-end noise in stocks and bonds happening now. The GDP in the US 4Q is clearly lower than 3Q but the relative difference of US growth in 2018 against Europe matters. The higher CPI in Germany today also matters as it means the ECB will likely see a race to normalization of policy as necessary regardless of politics. The US markets have been playing a selling game starting with the noise of trading the open and close. 

The value attribution of trading equities has changed and the fact that earnings just haven’t mattered this season seems hard to believe. Pressures over the mid-term elections and tariffs are blamed but that will change in November (particularly if G20 Xi/Trump meetings work).

The seasonality of trading risk matters and many see the rest of the year as already a foregone conclusion with the risk-on button ready to be pushed after the US jobs report.

What Happened?