Status quo under assault: The Angry Brits Movie
- US retail sales beat forecasts
- Angry Birds and Angry Brits
- Dot-plot fever season starts tomorrow
By Michael O'Neill
1) Both take place on an island
2) The island is inhabited by citizens who know nothing of the outside world (that seems to be how the “Remain” side view the ”Leave” side)
3) One bird in particular “Red” has anger issues. (Nigel Farage or Boris Johnson, perhaps)
4) Green pigs arrive and appear to be friendly but have a sinister motive (The EU)
In the Angry Birds movie, the greedy pigs are defeated and Red, the bird with the anger issues, is hailed as a hero.
A year ago, no one took Donald Trump seriously. His Republican leadership run was viewed as a joke. Today the clown is the ringmaster and former foes are scrambling to curry favour in hopes of being relevant if Trump wins the presidency.
The status quo is under assault. In Canada, the conservative party ruled oil-rich Alberta since 1971. That came to an abrupt end in May 2015 when the NDP party (left-wing, socialists) took the reins of power. A weak economy and widespread dissatisfaction with the “out-of-touch” ruling elite led to the conservative party’s demise.
The federal election took voter unhappiness one step further. They tossed out the incumbent government of Stephen Harper in favour of a Liberal government led by Justin Trudeau. Justin is probably the most poorly educated, poorly qualified leader of any G10 country, yet, since his father was a prime minister, Canadian voters thought he couldn’t do worse than his predecessor.
For the UK, wild cards like Trump and Trudeau are the norm and the Brexit ‘Stay” camp should be worried. British voters are getting a chance to tell the ruling elite and the unelected EU officialswhat they really think of them. Those officials may soon find themselves in a poorly aimed sling-shot, splattered upon the rocks.
Dot plots and dashed dreams
For more than a few months, financial markets have heard that it would be appropriate to raise rates in the “coming months” from a variety of Fed officials including the chair, Janet Yellen. The June 15 Federal Open Market Committee meeting was widely viewed as the rate hike launch site.
Those dreams were dashed on June 3 when the US posted extremely disappointing nonfarm payrolls data. Not only was the headline number (38,000) far below forecasts (160,000) but the 59,000 in downward revisions to the previous two reports added insult to injury.
Today, no one expects a June rate hike. In fact, more and more analysts are questioning whether the US will even hike rates this year. The CMC FedWatch tool ascribes a 2% probability of a rate hike tomorrow and only an 18% chance in July. The best odds are for a December hike and they are only at 50%.
That means the dot-plot forecasts which are in the Summary of Economic Projections that will be available when the FOMC statement is released tomorrow, will be a major focus and key driver of US direction. Will the dot plot continue to project two rate hikes in 2016 or just one? If only one, the fallout would be nasty.
Opec-looking at the world through oil coloured glasses
Opec released its monthly Oil Market Report yesterday. It predicts global GDP growth of 3.1% and see the Chinese economy growing at 6.5%. China probably hopes that the Opec forecast is correct while many G10 central banks remain concerned about China’s growth prospects. Opec sees India being a major contributor of oil demand. It said that the downward revisions in production from Canada, Brazil and Columbia broadly offset upward revisions in the US, UK and Russia.
The Opec report is mildly bullish for crude and should reinforce support for WTI in the $47.20-$47.50/ barrel range.
Chart: Brent prices compared with US oil stocks
USDCAD technical outlook
The intraday USDCAD technicals are bullish while trading above 1.2810 which represents a prior resistance level and the uptrend line from Friday’s low. The break of resistance at 1.2840, a level that contained rallies since June 8 and 1.2835 which represents the 38.2% Fibonacci retracement of the June 2-June 8, 1.2645-1.3245 range suggests further gains to the 61.8% level which is at 1.2952.
Longer term, the USDCAD uptrend from the January 2015 surprise Bank of Canada rate cut level of 1.1730, remains intact while prices are above 1.2500.
Chart: USDCAD Daily
– Edited by Clare MacCarthy
Michael O’Neill is an FX consultant at IFXA Ltd