Lately, the primary themes in the media revolve around the bombastic rhetoric from the leaders of the U.S. and North Korea. Again, the key to a genuine possibility of warfare will be the beginning of the evacuations of Americans from Seoul, South Korea. The more important elements for global financial markets seems to be directed at ECB President Mario Draghi’s upcoming Jackson Hole speech. In Thursday’s Financial Times, Mohamed El-Erian asked the paramount question concerning the shrinking of central bank balance sheets: “… how many systemically important central banks can effectuate the policy pivot without undermining the over-all liquidity support that has been critical for decoupling asset prices from fundamentals.”
In the FRA podcast with Peter Boockvar on Wednesday, I opine that (and readers are familiar with this idea) Draghi will be very slow to begin QT for the ECB has a very different agenda than the FED and the BOJ, until proven otherwise. Many traders are positioning for a Draghi announcement from Jackson Hole. If you think this is the case, I would be buying bunds and selling French debt because the recent compression in the 10-year spread should reverse since there will be less upward pressure on German yields. (Another reason: Newly elected French President Macron’s poll ratings have been slipping and his confrontation with the French unions has not even begun.) This theme will be developed as the week progresses. Pour the scotch and enjoy the PODCAST.