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Bob Elliott


Sep 23

9 tweets

Looking through the market action shows this isn't just a UK fiscal policy story. Asia central banks driving tightening is having a big, broad impact. Lets take a tour. Obviously gilts puked on the news of fiscal expansionary policy. 5-6am and have remained flat since.

But before we blame this entirely on the UK situation, take a look at the timing in the US bond market action. A modest decline from 5-6am. But bonds were reversing ahead of the UK market action and took another leg down afterward. Something else is going on.

Look at what is happening over there in USDCNY. Declines through the night and CNH declines post 6am right there when the US bonds took another leg down (CNH at that hour is the liquid market).

And that aligns with what we have seen with the US stock market all night. It was declining before and after the UK dynamics hit. The UK move in the 5am-6am hour is a pretty small blip in the overall picture. The tightening of US conditions from foreign bond sales is happening.

And now turning to other FX. Sterling got hit on the announcement, but a second leg down post 6am. The pound is trading like a classic high yielding EM FX on global liquidity conditions. And why not? Deficits and easy money in response look more like those countries dynamics.

Interestingly most of the euro move happened *before* the sterling selloff. Its not the PMIs, those hit at 4am. 2am US time suggests some heavy Asian selling. Could those central banks be choosing to sell euros now as well? That's interesting.

Crude is trading like global conditions not like the BoE announcement was the main driver. Declines all night. Copper looks the same way.

And gold declining all night too. Some impact from the BoE but almost all the move before and after. Looks like someone hit a margin call just after 6am.

The UK announcement didnt help things, but its impact on cross markets was pretty modest. Scanning across the markets and looking at the timing shows just how much the tightening of global liquidity coming from Asia is really impacting what's going on.

Bob Elliott


CIO at Unlimited | Previously Bridgewater Deputy CIO | all comments are personal views and not investment advice

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