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Article / 09 June 2016 at 12:30 GMT

Lethargy, apathy and a distinct case of nerves

Director / Accumen Management
United Kingdom
  • Dislocation of logic, risk/reward may be 'nearing its peak'
  • G10 forex markets show lack of liquidity, volatility
  • Kiwi surge a demonstration of market's overall skittishness

The kiwi is soaring high above its native New Zealand in the wake of last night's 
decision by the RBNZ to hold rates steady. Photo: iStock

By Ken Veksler

Lethargy: a sense of all-enveloping futility, frustration and general apathy... and that’s just me, wait till I tell you about the market! Naturally, one is borne directly of the other and thus it becomes distinctly more difficult to write a daily piece when so little of any real significance is actually happening.

Of course you can point to the plummeting yields in long paper, corporate issuance which you have to pay for the privilege of lending on, US equity indices that are within a hair’s breadth of all-time highs amidst ever louder calls of doom and gloom, but in truth the only thing you’d be doing by highlighting all of the above is simply pointing the nonsensical nature of current market dynamics.

The dislocation of logic and risk/reward is perhaps nearing its peak and with it brings the natural twitchy behaviours one could expect. The notion of punters (of all walks of the investment/trading life) being afraid of their own shadows is certainly on display for all to see. 

To that end it means we will continue to see outsized intraday volatility resulting from a complete lack of flow and liquidity in the G10 FX space, earning brokers and intermediaries cash and everyone else headaches.

Kiwi takes flight

One of the better examples of the above was the Reserve Bank of New Zealand's decision to stay sat on its hands overnight. There was no further cut to the cash rate as many had forecast, save for the fact that everyone else seemingly was positioned for just that – a cut. 

The absence of one saw the Kiwi climb to fresh, 12-month highs in what was an outsized, two-standard deviation move on the back of thin air. The statement and guidance from the central bank was little changed since the last meeting and some (if only brief) attention was given to the stronger currency, which ironically strengthened even further as a consequence.

Interestingly, while New Zealand is undoubtedly Australia’s poor cousin, it does share some similarities in that the execution of a dull tool such as monetary policy is handled and instituted with kid gloves, mainly for the fact that in both nations the ability of the economy to go from zero to hero is unprecedented and thus encouraging further stimulus via looser policy is done ever so cautiously.

The data-dependent dollar

Otherwise, it all continues to be about the DXY and the USD leg of major crosses rather than anything innately specific to the term currency itself, so enjoy the directionless oscillation for now...

Little of real note on the data agenda today as we wait for US weekly claims this afternoon, amidst what is now an interesting media narrative development. Here I mean that some in those very circles are pointing at what they perceive to be the growing import of this data release as the nonfarm payrolls seem to be swinging too wildly. 

This is quite clearly nonsense, but what I think they actually mean is that if the US is indeed reaching (or has reached) full employment or something resembling this, then most certainly the weekly data will hold greater relevance than does a backward-looking monthly data point.

Make of this what you will for yourselves, but do understand that a monthly NFP print of 180-220,000 is unsustainable and irrational.

As always, helmets on and good luck out there.

Nonfarm payrolls
Can the US add 220,000 jobs every month? Because if you think so, 
we have a bridge to sell you... Photo: iStock 

— Edited by Michael McKenna

Ken Veksler is director of Accumen Management


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