"What's The First Thing You Look At In The Morning?"

Via Bloomberg’s Richard Breslow,

A number of years ago, I began traveling to different trading rooms across continents. One of the things I shouldn’t have been surprised to learn, but was quite taken by, was the different answers I got to the question, “What’s the first thing you look at when you get up in the morning?”

Everyone was curious about the obvious big picture in the markets but first on the list was always what would affect them most immediately, directly and therefore personally.

During one of my first trips, I became well-acquainted with a fabulous trader in Singapore. Not surprisingly, especially given the era, he mostly traded emerging markets – strongly enough to have never missed a beat making two-way prices throughout the entirety of the Asian financial crisis. His answer, without hesitation, was “the Mexican peso.” Which, trust me, didn’t trade back then in South-East Asia. But he said it was his secret key to anticipating the mindset of the client base and gave a good idea how things would at least open locally.

If you posed that question to traders these days, you might hear S&P 500 E-minis, 10-year Treasuries or the dollar. That might work, but probably isn’t all that smart.

Given the steady correlation of the on- and off-shore yuan with a number of assets, you might as well go to the source.

All the more important because, as we saw earlier Friday, the two yuans started to motor even before the news was out that China was re-instituting the “counter-cyclical factor” used in setting the on-shore yuan settlement rate.

And they set in motion several things, including the Bloomberg Dollar Index and, yes, the Mexican peso. It’s a far better explanation of what’s been going on than, “All eyes on Jackson Hole.”

Obviously days evolve and new developments happen, but it makes no sense to try to understand the way forward if you don’t have an inkling of the context driving the past. And how you define “past” can be minutes, hours or days. If you look back over the course of this year, there is a lot we now understand with the benefit of a much closer inspection of the yuan. If it moves things in the moment and over the course of time, it needs to be way up there on your list of must-check assets.