Much ado about nothing. Calling today a turn-around Tuesday maybe too extreme as mood swings about risk-on or off in the midst of light economic data and little harder geopolitical news leaves price action stuck more in a range. Wake me up when the EUR breaks 1.16 or 1.19. Connecting price action to fundamentals hasn’t been so fruitful of late – blame the noise of summer. The focus overnight was on US Treasury Mnuchin sounding upbeat on raising the debt ceiling and getting tax reform. Trump promised to stay the course in the 16-year Afghanistan war – likely adding troops in the process. USD is higher overnight as most analysts see Jackson Hole as the key risk. JPY, Gold both lower while Oil and Iron Ore higher. In Asia, North Korea threats are losing their sting while the Bank of Thailand is back to battling THB strength – warning on capital controls. Indonesia is thinking about cutting rates to spur growth and the Japanese are continuing to play with BOJ debt monetization. We remain in a world where FX is a tool for central bankers – just ask the ECB. That puts the Jackson Hole focus into perspective and makes the day that much simpler – if the USD goes up further – like it did overnight – then the rest of the world is happier and if it goes down, trouble. The EUR is an example of this today – as the drop in the currency back to yesterday’s lows is more indicative of noise than of anything new from the ECB or the data – as the ZEW sentiment isn’t as powerful at the IFO in predicting growth. The chart for the EUR is telling us that the failures over 1.18 make a test of 1.16 more likely and more dangerous.

The month of July has brought a sharp rebound in risk-parity strategies with some moderation of fears about the ECB and other central banks rushing to normalize rates, despite the Bank of Canada hiking rates and despite the data from Europe that continues to suggest tapering time is past due. Bond selling that started in earnest at the end of 2Q has stalled, while equities have rallied to new record highs. 2Q earnings are part of that story, along with a view that this is global “Goldilocks.” The FOMC is widely seen shifting to a modest balance sheet run-down in September without a rate hike, with less than a 50% chance for December linked to inflation data. The USD is sharply lower on the month – the 5th such month in a row - as the US growth has slipped in lock step with hopes for anything good out of Washington – particularly some tax reform – as healthcare reform stalls. The Trump Russian investigation has also been highlighted as a problem for the US as it tears apart the Republican consensus and blurs the focus on the Trump Agenda. Oil has consolidated with US production matching OPEC output cuts but the dramatic drop from 2Q reversed with inventories finally correcting into Summer peak demand. Geopolitical concerns are high with North Korea and US trade policy both in focus. The G20 became the G19 in July with US Paris Accord drop out being seen as isolationist. The risks in politics abated somewhat in Europe but popularity of present leaders is in doubt almost globally: inn Japan – with Abe losing the Tokyo Municipal elections and also in the UK as PM May struggles with a minority coalition into Brexit talks. The French support for Macron eased back in July with his military stand-off losing some voters and as many doubt his ability to move on Labor reforms fast enough. The favorite global leader according to a number of polls remains German Chancellor Merkel who leads with an 87% chance for re-election. The most despised leader maybe Putin but the most likely to lead to revolution is Maduro in Venezuela as protests rise after his power grab dissolves the National Assembly in favor of a Constitutional change. The fears of trouble in China have abated with its 2Q GDP, and that focus on growth throughout the world, drives the return of the risk rally, as better growth globally mixes with lower inflation to drive the stretch for yield.

Bitcoin (BTC) has tripled and then halved since late March Even at BTCUSD 2000 issuance amounts to $33bln Historic volatility is high (80%) but implied volatility is higher (97%) The introduction of derivatives and an interest rate curve suggest financial deepening

My take away from the FOMC rate hike today – it’s in the singular focus of the Fed to normalize rates even in the face of weaker data and less confidence in fiscal policy stimulus. The previous data dependency that replaced forward guidance has been transformed into a race to get to normalization before there is an outside shock or ahead of what should be happening per the Phillip’s Curve – namely wages going higher as unemployment goes down.