The Oct Empire State Fed survey and Sept retail sales today

Outlook:

We get the Oct Empire State Fed survey and Sept retail sales today, forecast up 0.7% (WSJ) from 0.2% last time. A lesser number might be dollar-negative.  Many will be watching the S&P and its 200-day moving average, which is okay as a rough guide but carries more weight than it should. Over long periods of time, like 50 years, a crossover of the index and its 200-day is a lousy predictor of bom and bust.

We are interested in an FT story that starts out talking about the Italian budget but shifts into a story about how the EU makes exceptions and exemptions for various parties over time, including France and Spain. It’s a pact honored in the breach. “A major eurozone country has elected new leadership on promises to loosen the purse strings in defiance of bond markets, Berlin and bureaucrats in Brussels. The message to Chancellor Angela Merkel, Europe’s most powerful leader, is uncompromising: ‘People have made a choice which envisages a renegotiation of the fiscal treaty. It’s not Germany that decides for the whole of Europe.’”

These are not the words of Italy’s populist leaders preparing to send a rule-breaking budget to Brussels. They were spoken in 2012 by François Hollande, France’s incoming socialist president, who vowed to force Berlin to renegotiate a fiscal pact concluded by EU leaders the previous year. Mr Hollande’s rhetoric echoes Rome’s current fight against the EU’s budget strictures, known as the stability and growth pact. For Matteo Salvini and Luigi Di Maio, Italy’s Eurosceptic deputy prime ministers, the pact is everything wrong with the EU: a violation of national sovereignty and a straitjacket that punishes the poorest.”

What does the FT know that the rest of us do not? The implication is clear: keeping Italy in the eurozone and not complaining too loudly about the straitjacket takes priority over being uptight and strict. If Italy is to be given leeway, the euro crisis could be ending this week. As crises go, there was more yelling and foot-stamping than actual negative outcomes. We don’t know whether the Bloomberg yield chart is a reflection of the kind of thing the FT story hints at, but it sure doesn’t look like a showdown at the OK Corral.

This implies that the euro can rebound significantly. A test of the 1.1853 level (high from Sept 24) is not a silly prospect. Don’t position too hard.

Fun Tidbit: Cryptocurrencies are in the tank. The WSJ reports that as the 10th anniversary approaches, all of them has suffered vast losses after a wild year last year. Bitcoin, started in 2008, rose 1,375% in 2017—but is down over 60% from the high. “The larger crypto market fared even worse: The combined market value of all cryptocurrencies fell about 13% in the quarter, dropping from $255 billion to $221 billion as of Friday, according to data from CoinMarketCap.”Volumes are down by about a third, with Q3 daily volume at 217,000 from 319,000 in Q4.

The NY Attorney General’s Sept report on cryptocurrencies “found that many exchanges lack basic consumer protections, leaving investors vulnerable to manipulators.” The SEC has rejected 9 proposals for bitcoin RTF’s, including a second rejection of a fund by the Winklevosses. The SEC consistently finds a lack of transparency as a sticking point. Finally, initial coin offerings (ICOs) took in $12 billion this year, about double the amount last year, but some 70% of the offerings are worth less now. August has 17 ICOs and that’s the least of any month of the past year.

Whole forests have been chopped down to write about the bitcoin phenomenon. In the beginning, we dismissed it as a fad designed to separate the foolish from their money or at least vulnerable to fraud and theft. And in many instances that is still the case. But the desire remains among non-mainstream folks for an “investment” entirely separate from the Establishment, which they know for sure has the deck stacked against them. After all, where are the customers’ yachts?

This is an excerpt from “The Rockefeller Morning Briefing,” which is far larger (about 10 pages). The Briefing has been published every day for over 25 years and represents experienced analysis and insight. The report offers deep background and is not intended to guide FX trading. Rockefeller produces other reports (in spot and futures) for trading purposes.

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