What I’d really like to see is a central bank whose entire membership consists of Twitter pundits and/or experts. If last night and the ensuing reaction was anything to go by, then frankly we’d probably be living in a better, more efficient and generally happier (economically speaking) world.
As ever, chair Janet Yellen and the entire Federal Reserve were apparently wrong and should be doing anything other than what they’re actually doing. To me this outcry of fallibility ironically serves only to confirm my own instinct that the Fed is now acting entirely rationally and reasonably based on the environment both in the US and further afield globally.
I, unlike every other Muppet out there, don’t care how many times the word “uncertain” was mentioned (for the record it was 11, according to those that count or care), for me it means nothing other than a cautious (justifiably) entity that is effectively the world’s central bank.
Rationalisation and thus a lower dot plot is entirely fair and reasonable and reflects voting and nonvoting members that acknowledge the state of the US economy and don’t feel the need to jam a square peg into a round hole as so many out there in the market feel they should be doing, all in the name of “normalisation”.
Speaking of which, if anyone cares to tell me exactly what that term means in today’s environment, I’d be ever so grateful. Otherwise it’s just more spurious nonsense. Regular readers know how I feel: an economy fast approaching full employment, with almost insignificant price and wage pressure coupled with anaemic economic growth, is far from normal
Finally for the record, I still see the possibility of one hike from the Fed this year, although my own allocated probability to this event is slipping somewhat presently.
The Fed wasn’t the only central banking show in town overnight and since then we also obviously had the central banks of the UK and Japan. On the former, we saw nothing new outside of increasingly meaningless rhetoric. The market’s reaction was to buy JPY... in size. The USDJPY remains depressed as I write and should it stay here or lower, I can assure you the relevant authorities will begin to get a little tetchy.
The logic is simple; the vast bulk of hedging done by Japanese corporate accounts was done initially into 95.00/100.00 but as the rate moved ever higher and eventually saw a peak above 125, that very same hedging was slowly averaged and ratcheted into the 100/105 range.
Thus the longer we sit sub 105 the more stressful things become and the greater the pressure for the BoJ to “get involved”.
In terms of the BoE, nothing new. It remains concerned about the implications of the Brexit vote, especially should it mean leaving the European Union and thus structured a statement to carefully convey this very fact. OIS pricing sees greater interest in the potential of the bank to cut rates as the curve sits over the short and medium terms and while I don’t personally know or feel this would be the correct reaction from the bank, I can’t deny the increased likelihood of this becoming a very real policy alternative.
Cable has found some very interesting bids into 1.4100 today on the slip lower, despite good retail sales data. On that point, the headline was better than the underlying and right now it (along with a few other data points) has given me enough pause to reconsider my base line case of ever-worsening data in the UK.
Q2 prints have sporadically been OK and this to me means either we’re finding a temporary plateau (as nothing moves in a straight line forever) or the bottom for poor data is indeed in. For the record, I don’t think the bottom is in.
Overnight Australian employment data were basically in line and thus of little real value either for the upside or downside for the AUD; thus the little battler remains listless and a function of the broader DXY for now.
Finally for the sake of my sanity and yours I will not mention the fixed income market, duration or yields.
As always, helmets on and good luck out there.
— Edited by Michael McKenna