There is no power in the market greater than the public purse. Politics returned as the driver overnight – US Senate passage of a budget opens the path towards US tax reform. This set the US bond market sharply lower as most see it increasing the US budget deficit. UK May speech to EU leaders opened further path to real EU talks – but it will come at a price with Ireland, EU payments and citizenship issues all still in play - both stories help boost outlooks for better times ahead and higher equities follow but both events also require talk to translate to action. In the case of the US, tax reform has many other votes needed to meet a Thanksgiving deadline. For UK May, the EU wants to see the money – the divorce bill remains contentious and over E20bn. If yesterday was about fear – whether NZ politics, Catalan independence or remembering the 30th anniversary of Black Monday – then today is about greed and how governments can squeeze out private money. The break out for US 10-year rates maybe central for understanding today and risk elsewhere. The break out of USD/JPY beyond the 113.40 line opens 115.50 post the Abe re-election. It’s a question of how many seats the LDP wins or loses and if BOJ Kuroda remains or is blamed. The UK faces a similar breaking point with GBP watching rates – helped by May, hurt by the unreliable boyfriends at the BOE. BOE Cunliffe became the latest policy maker to strike a cautious tone when he said the timing of rate hikes was an “open question,” even as the market prices in 80% chance for a November 25bps hike. GBP is doing better than the EUR today but the USD is the main mover for everything else. For trading today, the USD breakout risk requires support from the US rates – with 2.45-2.50% targets in 10Y the needed move to really change the present dynamic. Talk is cheap, money less so.

While Asian shares continue to trade near 10-year highs, Europe stalls with the news just not enough to make the mood upbeat as US talk of Trump supporting Taylor for FOMC Chair next drives everyone to Taylor rule calculations and rates higher faster. The USD is holding bid, EM lost some of its luster along with gold while oil is higher as Iraq continues to play hardball with the Kurds over independence. The German ZEW was weaker than expected but hardly weak. The UK is holding tough as UK May had a constructive dinner with EU last night – holding out for hopes of a talks still while UK CPI was at 5 year highs and BOE testimony talks of a rate hike in November but not much more. The GBP does better than the EUR but the USD is back in the driving seat with the focus on rates. The only chart that matters today is going to be the 10Y to see if US can break out – but with IP and import prices the news agenda that may be hard to do. Jitters aren’t the same as panic and the fear factors moving markets are just not in place to offset any of the other stories like 3Q earnings.

Greek bonds have been the best performer in the Eurozone year to date IMF austerity is still in place but there are hopes they will relent Portuguese bonds have also rallied since March whilst Spanish Bonos declined German Bund yields are up 28bps since January heralding an end to ECB QE

Track Research kept up its tradition of hosting monthly Idea Dinners in September with a dinner that included economists, traders, portfolio managers and investors. If there was an underlying mood, it was one of fear that the present complacent markets as shown by low volatility and low yields was about to change. Some argued that this meant faster central bank reactions, others saw inflation rising faster, while most doubted equities would sustain their uptrend in such a world. There was a debate about the role of political noise against economic facts and which mattered most to the uncertainty into 4Q. The role of demographics and technology also was a key part of the discussion like many other dinners in 2017. This led to a list of suggested reading with the recommended Book of the month being Machine, Platform, Crowd: Harnessing our Digital Future. The second place was A Mind at Play: How Claude Shannon Invented the Information Age.