E Markets: Goats

We are herding up the scapegoats in hopes for a quicker end to the blame game for trouble into Friday and the month-end next week.

Blame Brexit and the US government shutdown, blame the US/China trade talks stalling, blame the China slowdown, blame politics but don’t think this slowdown is a recession – that is the message of the economic analyst community as we grind into Friday and the month-end next week. Embrace the gloom but recognize it will pass with time as the UK figures out what to do about its EU divorce  (see the UK Sun with the DUP and May deal) and Trump figures out what to do about his wall (expect some more talks with Trump and Democrats today.)

The difference between a slowdown and a recession matters to investors and corporations. The deterioration of the present conditions stings less than fear about the future.  So the ECB reactions this week matter and lead the markets as any rate hike risk moves further away. “The slowdown has surprised us ... we have to be very careful to monitor the data,” ECB Coeure told Bloomberg television, arguing that the jury was still out on whether this growth dip is temporary. While ECB de Galhau noted, “We remain committed to maintaining interest rates very low, which is good for the economy.” ECB Villeroy added to the policy outlook shift on Bloomberg TV saying, “We could consider the provision liquidity and credit to banks, it’s part of our toolbox.” 

Reuters reports that Germany is cutting its growth forecast from 1.8% to 1% in 2019 and 1.6% in 2020. What seems most interesting with the weaker German IFO, lower Sweden retail sales, gloomier CBI retail sales today is that nothing really moves down – EUR/JPY is 124.50 same as yesterday as equities bounce on easing hopes from the ECB and 4Q earnings. The biggest story remains the biggest goat – Brexit – as the Queen steps into the debate with a delicately coded message to Parliament to end its bickering and to get on with the search for a common ground the matter. The story that the DUP and UK May have found that leads today’s price action. The biggest story is GBP, which breaks out of its 1.3070 55-day resistance and looks set for a run back to 1.34-1.35 resistance. This makes it clear that the goats are working in keeping future fears in check with longer-term greed. 

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