Authored by 720Global's Michael Lebowitz via RealInvestmentAdvice.com, Recently on our Twitter feed, @michaellebowitz, we introduced the hashtag #fedgibberish. The purpose was to tag Federal Reserve members’ comments that highlight desperate efforts to rationalize their inane monetary policy in the post-financial crisis era. This past week there were two quotes by Fed members and one by the head of the European Central Bank (ECB) which were highly deserving of the tag. We present them below, with commentary, to help you understand the predicament the Fed and other central banks face. Lael Brainard On September 5, 2017 Fed Governor Lael Brainard stated the following in a speech at the Economic Club of New York: “We should be cautious about tightening policy further until we are confident inflation is on track to achieve our target.” – “There is a high premium on guiding inflation back up to target so as to retain space to buffer adverse shocks with conventional policy.” Let us rephrase: The Fed must be careful not to raise interest rates further until signs of inflation appear. When said inflation does pick up and it meets our target, we can then raise interest rates further. In doing so, we will then have the ability to lower interest rates when the economy hits a rough spot. Inflation has been benign since the 2008 financial crisis. Clearly, nine years of the lowest interest rates on record have not been inflationary for the prices of goods and services that make up most standard economic inflation gauges. In fact, it is difficult to find a better real world example of deflation than the incoherence of negative interest rates manufactured by some central bankers who are begging for inflation. That said, there is a strong positive correlation between the amount of Fed stimulus and the price of financial assets. What Lael Brainard and her colleagues fail to understand is that excessive Fed policy has diverted capital away from productive investments that would generate the inflation and economic growth she and her colleagues so desperately seek to conjure. The bottom line is they do not understand the effect that eight years of excessive stimulus have had on the economy and are clearly unaware of what must be done to solve the global economic malaise. Neel Kashkari On September 6, 2017 Neel Kashkari from the Minneapolis Fed stated the following: “Fed rate hikes may have done real harm to the economy.” Kashkari senses economic weakness, which he believes is occurring as a result of the Federal Funds rate increasing from zero to 1.25% over the past 21 months. While that statement might be legitimately arguable, he is woefully negligent in helping his listeners understand why the economy is struggling despite the lowest rates in recorded history. An economy that cannot handle such a rise in the cost of money is symptomatic of a society burdened by too much debt. We posit that the economic problems the Fed aims to fix are the result of abnormally low interest rates and other stimulus of years past. These have not had the desired economic effects and have also curtailed future growth. After all, the use of debt pulls forward future consumption leaving less consumption in the future. Mr. Kashkari should consider that encouraging more debt is not the way to solve a debt burden. Either that, or he should let us in on his plan to forestall the arrival of the future from which consumption has been borrowed and payback is required. Mario Draghi On September 7, 2017 ECB President Mario Draghi stated: “We do not see negative effects of QE”. We are speechless. We simply ask Mr. Draghi – if there are no negative effects of QE then why are you contemplating tapering QE? In fact, why are the European people not rioting with pitchforks for a lot more QE? There is no doubt in our mind Draghi’s statement flat out lie will become obvious over time. Until the media and the markets awaken from their central bank induced slumber, we leave you with the infamous words of prior ECB President Jean-Claude Junker: “When it becomes serious, you have to lie.” As we put the finishing touches on this commentary, New York Federal Reserve President Bill Dudley pointed out that the longer-run effects of disasters like the recent hurricanes actually lifts economic activity. Our reply to this absurd comment is simple: #fedgibberish
With the 10Y nearly touching a 1-handle ahead of this weekend's battery of potential risk-off events, none of which however materialized in their worst-case outcome, many are once again calling for a bottom on yields, especially as net spec shorts rose over the past week according to the latest CFTC COT data. And yet, not everyone is convinced that "this time is different." As Bloomberg macro commentator Wes Goodman writes overnight, "after the U.S. 10-year yield fell to just above 2%, what’s next? It’d be easy to say it should snap back to a range of 2.3% to 2.5%, especially after it jumped at Monday’s open. But that’d be too boring. That’s the consensus view." Instead, Goodman joins a small group of rates bulls who believe that despite today's risk-on euphoria, the next move in yields will be down, not up, and list the following reasons why "the world benchmark for borrowing costs can drop below 2%." His full note below: Calls for U.S. Yield Rebound Are So Passe. And Wrong: Macro View After the U.S. 10-year yield fell to just above 2%, what’s next? It’d be easy to say it should snap back to a range of 2.3% to 2.5%, especially after it jumped at Monday’s open. But that’d be too boring. That’s the consensus view. And keep in mind the consensus calling for higher yields has been wrong for years. Here are the reasons the world benchmark for borrowing costs can drop below 2%. Minneapolis Fed President Neel Kashkari says Federal Reserve interest-rate increases may be “doing real harm” to the U.S. economy. The hikes may be slowing jobs growth, leaving people on the sidelines and curbing inflation, Kashkari said earlier this month. By this reasoning, even another Fed rate hike this year would help Treasuries. After all, yields have tended to head lower as the central bank pushes its benchmark higher. And inflation is already going the wrong way. Pimco’s Dan Ivascyn said in June that slowing inflation opened the possibility the 10-year yield would decline to 1.5%. Treasuries demand is also likely to be supported by softness in other markets. U.S. assets such as real estate, stocks and junk bonds are at risk as the Fed unwinds its quantitative easing program, says Yusuke Ito at Asset Management One in Tokyo. The Fed’s decade-long effort to push interest rates down aimed to channel money to these assets, and they’re in jeopardy now as policy makers begin to dismantle the program, he said. Japanification is transforming America too: An aging population will curb economic growth, rising welfare costs are limiting room for fiscal stimulus and banks are hoarding bonds instead of funneling money into loans. North Korea is keeping demand for haven assets alive. While it’d be easy to go with the consensus for higher yields, the case for a further push lower isn’t too shabby. And it’s usually been correct over the past 30 years
Authored by Kevin Muir via The Macro Tourist blog, Last night the US stock market sold off on headlines that Trump had taken Gary Cohn’s name out of the running for the next Fed Chairman. From CNBC: A senior administration official told CNBC that Trump is considering several candidates for Fed chair. CNN reporter Jake Tapper tweeted that a source close to the White House told him that Cohn is “more likely to get electric chair than Fed Chair.” I have been skeptical that Trump would give the nod to Gary. First of all, he’s a Democrat. Secondly, he’s got squid stench all over him. But most importantly, he ain’t going to do what Trump wants. Gary is way too much of his own man to appeal to Trump. Trump wants an Arthur Burns character that can be bossed around like Nixon did. No, Gary will stick around with the administration for his full year so he will be eligible for the tax deferral deal on his Goldman stock, and then he will quietly split. And the prediction markets have correctly taken Cohn’s chances for Fed Chair down to almost 10%. But many pundits believe eliminating Cohn somehow increases Yellen’s chances. Yellen upticked on the news, but that’s also a pipe dream. Yellen doesn’t want the job, nor does Trump want Yellen. No, Yellen will follow her Vice Chairman, Stanley Fischer’s lead, who abruptly resigned yesterday for “personal reasons.” All of a sudden, Trump can pick more board members than anytime before the Fed was conceived in 1913. Today, Kevin Warsh is one of the leading contenders. When I was discussing this development with the always entertaining Mark Spiegel, I expressed my view that Kevin Warsh was far too hawkish for Trump. To which Mark replied, “but Trump might not realize what Warsh really means until it is too late…” Yup, I can always count on Mark to make me smile. There is definitely a chance that Trump doesn’t bother to take the time to understand the implications of nominating Warsh, but I think the odds are slim. Trump is the King of Debt. If there is one thing he is good at - it’s debt. And let’s not forget his comments about renegotiating the Federal debt. Obviously he can’t default like he did when he was a real estate developer, but he can do what governments throughout the ages have always done - inflate their way out. Market strategists who toss around names for a new Fed Chair like Warsh and Taylor, both of who are now academics, are completely missing the boat. Trump will surprise us with the most unorthodox, easy money, lunatic you could ever dream up. The only conventional candidate that stands a chance is Neel Kashkari. He is currently on the FOMC board, is a Republican, and most importantly, is a huge dove. If not Chair, could he maybe take over as Vice Chairman when Fischer leaves? Regardless of the exact composition of the FOMC, the correct bet is to assume it will become significantly easier in the years to come. I guess to some extent the market has already figured this out. Over the past month, gold has exploded higher and the US dollar sold off hard. I suspect it might be only the beginning. * * * Today the market is panicking and bidding up fixed income across the board on news that ECB Chairman, Mario Draghi, was not prepared to announce the start of their tapering. And the reason for his reluctance to commence winding down Quantitative Easing? Inflation had not hit his target. My favourite part? Mario said in no uncertain terms: “NOTHING WILL DERAIL THE ECB’S WILL TO DELIVER INFLATION” The head of a Central Bank says that come hell or high water, he will deliver inflation of 2%, so what do investors do? They buy long dated German bunds yielding 30 basis points, locking in a real loss of 170 basis points if he achieves his goal. Yeah, makes complete sense. * * * I had to laugh this morning when Eurasia Group’s Ian Bremmer tweeted the following: I can’t say I disagree. Trump seems to be sticking his foot in his mouth a lot less often these days. And with the recent debt ceiling deal with the Democrats, you could almost say he is acting Presidential. Dave Lutz, from JonesTrading, had a great observation regarding this change: “…we could be on the cusp of a sea change here in D.C. Ryan and the Tea / Freedom Party shoved out of the picture, while Trump shows his true stripes and embraces the middle ground. If he’s cutting deals with the Dem leadership - he doesn’t need any of those cats. I wouldn’t short Trump at these prices.” I couldn’t agree more. I think Trump staring at the Solar eclipse was the bottom for his Presidency. After that bonehead move, it’s all uphill. Seriously, there is so little expected of him, he is bound to outperform. And if that is indeed the case, have a look at this chart of Trump’s approval rating versus US 10 year yields. I lagged the yield series by a couple of weeks, and I suspect that Trump’s recent performance might help slow down this bond rally. Right now it seems like nothing can stop this bond move, but remember the market always looks best at the top. I still see all sorts of reasons to be skeptical of this squeeze into fixed income. * * * Finally, I will write about this in a little more detail in the coming days, but I wanted to quickly review a potential trade for those who think Bank of Canada Governor Poloz just pulled a Trichet, and double hiked into a slowdown. Earlier in the year, the difference between the front end of the US and Canadian money market curves had more than 3 more relative tightenings priced in for the US out to June 2019. With the recent flattening of the US curve, and the surprise hike by the Bank of Canada, this spread has spiked to a point where Canada is now priced to have 1.5 more tightenings than the US. No way the highly levered Canadian economy can handle the increased rates and the massive strength of the Loonie. I am buying June 2019 BAX’s and shorting the equivalent Eurodollar contract. I expect these two contracts to converge back to zero in the coming months.
Global risk sentiment remained gloomy coming into Wednesday, with global European and Asian stocks sliding on growing concerns about North Korea and political inaction in the US, another hurricane bearing down on the US and the American debt ceiling looming. Industrial metals dropped as the latest Chinese commodity bubble appears to have peaked. Shortly before 6am a sharp risk-off move across asset classes was blamed on an erroneous North Korea earthquake tweet by the British Geological Survey. In European markets, almost every sector of the Stoxx Europe 600 Index retreated after equities slid from Hong Kong to Sydney as traders prepared for potential news of intercontinental ballistic missile launch by Pyongyang. U.S. stock futures fluctuated, and the dollar edged lower with Treasuries a day after dovish comments from Federal Reserve officials sparked a bond surge. The Bloomberg Commodity Index retreated from the highest since April even as crude oil extended a rally. “The 10 basis point fall in Treasury yields is clearly not something the European market can ignore,” said Mizuho rates strategist Antoine Bouvet. “The market’s also taking a bit of view on what the U.S. Federal Reserve will do next.” Asia was also mostly in the red, with the MSCI Asia ex Japan index falling 0.5% and Tokyo's Nikkei hitting a four-month low closing down 0.1%. South Korea's KOSPI ended down 0.3% at a near four-week low as did Australia’s ASX. The Hang Seng Index declined 0.5% in Hong Kong on low volumes and China’s equity benchmarks were also lower. According to Bloomberg the case for a continued risk-off tone was supported by a lack of consensus among the U.S., Russia and China on how to pressure Kim Jong Un to abandon his nuclear ambitions. Russian President Vladimir Putin rejected U.S. calls for more sanctions, echoing China’s resistance to more punitive measures. Still, despite the sharply lower "risk off" move in yields, equities refuse to budge and remain just shy of all time highs. The euro rose for a third day, hitting 1.1950 again before paring gains, and shrugged off an unexpected decline in German factory orders which unexpectedly fell for the first time since April, declining 0.7% MoM, missing expectations of a 0.2% increase. The euro was also stable ahead of the ECB announcement due in just over 24 hours: tomorrow Mario Draghi is expected to give more clarity on winding down the European Central Bank’s bond-buying program when he speaks after a policy decision on Thursday, even as he looks for ways to keep the common currency below 1.20. Speaking of the Euro, in currency trading, the dollar was on the backfoot as geopolitical concerns continued to support the yen; as noted previously a delayed Twitter posting from the British Geological Survey on a North Korea earthquake caused a brief spike in the yen before investors realized it was a reference to last week’s nuclear tests. The Canadian dollar was steady ahead of BOC’s review, with economists forecasting policy makers to be on hold. The Bloomberg Dollar Spot Index held its 0.3 percent loss from Tuesday after Fed Governor Lael Brainard said the U.S. central bank needs to pay careful attention to underlying inflation before raising interest rates again, while Minneapolis Fed President Neel Kashkari said rate increases may be “doing real harm” to the economy. “The broad-based theme appears to be justifiable caution despite the USD weakness stemming from dovish remarks from Brainard building on U.S. debt ceiling risks that have plunged UST yields, and correspondingly the USD,” said Vishu Varathan, Singapore-based head of economics and strategy at Mizuho Bank Ltd. “But the KRW is the dead give-away that risk aversion appears to be multi-faceted, and not a creature confined to the USD.” In Asia, most emerging currencies (with the notable exception of the "safe trade" Yen) fell as concern over any potential fresh provocations from North Korea dominated sentiment, offsetting the impact of dovish comments from Federal Reserve officials. The won led losses, while Malaysia’s ringgit bucked the trend after oil prices jumped Tuesday. The MSCI EM Asia Index of shares fell while bonds mostly rose. Among the Group-of-10 currencies, the yen rose against the dollar for a third day, while the Aussie erased gains after second-quarter economic growth missed forecasts. U.S. Treasuries fell after 10-year yields tumbled to the lowest this year; Hurricane Irma was on a path that may bring it ashore in Florida and destroy so much property that damages may surpass Hurricane Katrina. The yield on 10-year Treasuries climbed two basis points to 2.08%. Germany’s 10-year yield also gained two basis points to 0.35% while Britain’s 10-year gilt dipped less than one basis point to 1.026%. There was some good news for oil bulls with Brent and WTI continuing their recent rally with futures in New York topping $49/bbl for 1st time since Aug 14. Brent also extends gains, hitting day-high $54/bbl, highest since May 25. Brent volume spiked to day-highs at 10:55am London time as prices broke through Tuesday highs. Gold gained less than 0.05 percent to $1,340.08 an ounce. The Bloomberg Commodity Index declined 0.1 percent to 85.29, the first retreat in a week. Looking ahead, we get MBA mortgage applications, trade balance, Markit services PMI and ISM non-manufacture compositethe, while the Federal Reserve releases its Beige Book. Hurricane Irma, a strong Category 5 storm, could make landfall in Florida as early as this weekend. Bulletin Headline Summary from RanSquawk Old earthquake reports shake markets AUD/USD initially reclaimed 0.8000 before moving back below the level following domestic Q2 GDP numbers Looking ahead, highlights include US ISM Non-Manufacturing PMI, BoC rate decision and APIs Market Snapshot S&P 500 futures up 0.01% to 2,460.00 MSCI Asia down 0.2% to 160.22 MSCI Asia ex Japan 0.4% to 529.28 Nikkei down 0.1% to 19,357.97 Topix up 0.08% to 1,592.00 Hang Seng Index down 0.5% to 27,613.76 Shanghai Composite up 0.03% to 3,385.39 Sensex down 0.4% to 31,697.02 Australia S&P/ASX 200 down 0.3% to 5,689.73 Kospi down 0.3% to 2,319.82 STOXX Europe 600 down 0.4% to 372.16 German 10Y yield rose 0.7 bps to 0.345% Euro up 0.3% to $1.1949 Italian 10Y yield fell 3.9 bps to 1.707% Spanish 10Y yield rose 2.4 bps to 1.558% Brent Futures up 0.1% to $53.44/bbl Gold spot down 0.09% to $1,338.49 U.S. Dollar Index down 0.1% to 92.12 Top Overnight News Russian President Vladimir Putin again rejected U.S. calls for new sanctions against North Korea after its sixth and most powerful nuclear test, echoing China’s resistance to more punitive measures to pressure Pyongyang into abandoning its atomic and missile programs North Korea: Putin and South Korean President pledge to continue diplomatic efforts Fed’s Kaplan: repeats Fed should be patient on rates, may still hike in 2017 but must see how inflation plays out Politico: Trump is continuing to push for lowering the corporate tax rate to 15% despite opposition within his own party, according to people familiar Hurricane Irma: classed as extremely dangerous major hurricane; increasing chance of direct impacts on Florida, according to the NHC German Aug. Factory Orders m/m: -0.7% vs +0.2% est. Merkel bloc lead grows as SPD loses support in Forsa poll The ECB will raise its 2017 GDP and possibly its 2018 GDP forecasts when it releases new macroeconomic projections on Sept. 7, according to a Bloomberg survey German factory orders fell in July ahead of general elections; adjusted for seasonal swings and inflation, declined 0.7% in July after a revised gain of 0.9% in June President Donald Trump’s decision to end an Obama-era program preventing the deportation of immigrants illegally brought to the U.S. as children risks a deep wedge between the Republican Party’s leaders and its conservative base ahead of next year’s congressional elections U.K. faces ‘break it, own it’ problem on Brexit, Irish say Asia stock indices traded with a negative tone following the losses on Wall St. where markets reacted to the North Korean concerns, while financials led the selling amid declining yields and with insurers reeling from Harvey and the approaching Irma. This pressured ASX 200 (-0.4%) and Nikkei 225 (-0.1%), as financials in the region mirrored the underperformance in their US counterparts, while a slight miss in Australian GDP added to the sombre tone. Hang Seng (-1.0%) and Shanghai Comp. (-0.3%) also conformed to the downbeat sentiment with participants unimpressed by the PBoC’s resumption of open market operations from a 4-day hiatus, as this still resulted to a net daily drain of CNY 120bln. Finally, 10yr JGBs were marginally high with slight support seen from the risk averse tone, while the BoJ were also in the market although this was for a relatively reserved amount. PBoC injected CNY 20bln via 7-day reverse repos and CNY 20bln via 28-day reverse repos, for a net daily drain of CNY 120bln vs. Prev. CNY 70bln drain. PBoC set CNY mid-point at 6.5311 (Prev. 6.5370) Top Asian News North Korea Threat Hits Hong Kong Stocks Even Harder Than Seoul Onshore Chinese Stocks Burst Into Life as Demand Surges Apple Refusal to Approve India Spam App Antagonizes Regulator Fingerprint Drops; UBS Cuts to Sell, Notes Chinese OEM Risk Noble Default-Swap Verdict in Play as Test of ISDA System Japan Equity Movers: Recruit, Optex, Iriso, Toshiba, CyberAgent European bourses have been impacted by the risk off tone from American and Asian trade with 9/10 Stoxx 600 sectors trading in the red. Much anticipation is set to be on tomorrow’s ECB decision, with range bound trade evident across EU markets. Stock specific news sees UK homebuilders underperforming, with Barratt Developments down 3.4%, as some analysts point towards the company’s poor outlook. Elsewhere sees insurance names underperform amid the hurricane concerns growing across the US. Consolidation has been the theme as we approach Draghi tomorrow; with bunds interested in a gap fill, trading around yesterday’s low. The lack of direction shows in EZ/UK 10y yields, largely unchanged, as gilts await any French Brexit news or any further North Korean developments. The Spanish German spread is wider by 2.20 bps, ahead of supply tomorrow, supported by The Catalan Speaker's Committee voting 5-2 in favour of debating the referendum bill in Catalan parliament. Germany sold EUR 2.436bln vs. Exp. EUR 3bln 0.0% 2022 Bobl with a b/c 1.6 (Prev. 1.0), average yield -0.36% (Prev. -0.26%) and retention 18.8% (Prev. 24.5%) Top European News German Factory Orders Fell in July Ahead of General Elections Hungary, Slovakia Lose Refugee Legal Case in Deepening EU Rift Iceland Plans to Shut the Door on Chinese Investors, Again Nova Development in London Voted Britain’s Worst New Building Shell Seeks to Boost LNG Demand in Order to Build New Plants Panmure Gordon Hires Ex-UBS Research Boss to Prepare For MiFID Deutsche Bank CEO Highlights Asset Bubbles on Excess Cheap Money In currencies, the Australian GDP figure overnight saw AUD/USD fall back below the 0.8 handle that was claimed in trade yesterday. AUD/NZD also follows the recent Aussie weakness and looks back toward the overnight low; with the previous resistance around 1.1 likely to be a target for bears. USD/JPY has been the pair to watch, as Japanese buying interest has been touted around the 108.50 level, which has held throughout the session. Further support is likely around these levels with YTD lows ahead of 108. Australian GDP (Q2) Q/Q 0.8% vs. Exp. 0.9% (Prev. 0.3%). (Newswires) Australian GDP (Q2) Y/Y 1.8% vs. Exp. 1.9% (Prev. 1.7%) In commodities, the hurricane concerns in the US have led to the continued bid in oil markets, as WTI looks toward USD 49.00/bbl. Oil trade in Asia has led to snapping up crude cargoes from the US after the closures, with possibly more closures inevitable. Russia Energy Minister Novak stated OPEC and Russia may extend output cap deal if needed, while he also sees oil prices in 2018 at range between USD 45-55/bbl. (Newswires) Motiva's Port Arthur (603K BPD) is expected to initially return to 40% production by the end of this weekend. (Newswires) Libya's Sharara oil field re-opens after a 2-week pipeline blockage, according to sources. (Newswires) Looking at the day ahead, we get the ISM non-manufacturing PMI, the Fed’s Beige book, trade balance and final Markit services and composite PMIs are also due. Away from the data, UK PM Theresa May will face opposition leader Jeremy Corbyn in Parliament and the IMF’s managing director Lagarde will speak at a conference in Korea. Elsewhere, President Trump will also meet House Speaker Ryan, Senate Leader McConnell and a few others to discuss the upcoming debt ceiling. US Event Calendar 7am: MBA Mortgage Applications, prior -2.3% 8:30am: Trade Balance, est. $44.7b deficit, prior $43.6b deficit 9:45am: Markit US Services PMI, est. 56.9, prior 56.9; US Composite PMI, prior 56 10am: ISM Non-Manf. Composite, est. 55.6, prior 53.9 2pm: U.S. Federal Reserve Releases Beige Book DB's Jim Reid concludes the overnight wrap Tough to know where to start this morning following a surprisingly frantic day for markets yesterday. To be honest we’re struggling to pinpoint the root cause of the price action which saw 10y Treasury yields plummet back towards levels last seen on 9th November 2016 and flirt with a 1% handle and Gold rally to the highest since September 2016. Instead it feels like you could take your pick from any combination of the following catalysts; (1) the latest escalation in rhetoric over the North Korea nuclear test, (2) some fairly dovish Fedspeak, (3) ongoing concerns about the looming debt ceiling, (4) the decision to end the DACA program, and (5) the threat of Hurricane Irma which has resulted in Florida announcing a state of emergency and adding to recent adverse weather events. That’s not to exclude Brexit, NAFTA discussions and the ongoing Trump-Russia investigation as others bubbling away in the background at the moment. Before we look at some of those in more detail, in terms of markets and following the Labour Day holiday on Monday, the US initially walked back in and the early move was a reasonably modest risk-off one and certainly nothing that appeared out of the ordinary. However things quickly escalated from the late afternoon. At first it was the big rally for US Treasuries which stole the limelight. 10y Treasuries touched a new YTD low of 2.053% before ending at 2.060% and down 10.7bps on the day. That was strongest session since March 15th. 5y and 30y Treasuries were both 10bps lower, while the 2y10y spread hit just 77bps and the lowest since August 2016. Fed rate hike expectations were hit and December hike odds edged below 30%. Meanwhile Gold rallied +0.44% to $1339.7/oz and the usual safe havens like the Yen (+0.81%) and Swiss Franc (+0.30%) were bid up. In contrast, the S&P 500 (-0.76%) fell by the most since mid-August and ended a six-day winning streak. The Dow also closed -1.07% and the Nasdaq -0.93% while the VIX jumped over 20%. The sector moves told a story itself with Insurers tumbling in the wake of the Hurricane Irma threat (S&P Insurance sector down -2.07%) and Banks selling-off reflecting the move for bonds (S&P Banks sector down -2.38% and the most since May). On the other hand Energy stocks were one of the few sectors to enjoy a decent day after WTI Oil rallied +2.90% which makes the move for rates even more impressive. It’s worth noting also that a bumper day for US IG primary issuance seemed to have little side effect while the Treasury’s four-week T-bill auction – a decent barometer for the debt ceiling concerns - saw investors demand the highest yield since September 2008 at 1.30% and yields on existing T-bills maturing on October 5th and 12th jump by more than 4bps post the auction. This morning in Asia, markets have followed the lead from US and are all in the red as we type. The Nikkei (-0.31%), Kospi (-0.50%), ASX 200 (-0.55%), Shanghai Comp (-0.30%) and Hang Seng (-1.05%) are all down. It’s worth noting that Chinese banks are weaker, likely impacted by one Republican Congressman calling out Bank of China as a potential sanction target and then Treasury Secretary Mnuchin saying punishing specific entities is an option. Elsewhere, 10y Treasuries are a shade weaker this morning (+0.9bps) along with US equity futures. Back to some of those catalysts we highlighted at the top. Starting with North Korea, the most notable development yesterday was President Trump tweeting that he was allowing Japan and South Korea to “buy a substantially increased amount of highly sophisticated military equipment from the US” while South Korean newswires also suggested that North Korea was preparing a missile launch before Saturday. At the same time Russia President Vladimir Putin rejected calls for new sanctions on North Korea as proposed by Trump signalling some disconnect between world leaders on the appropriate path to take. Staying with politics, the news yesterday that the Trump administration had controversially agreed to end the DACA program was met with a chorus of criticism from Chief Executives around the world. There was also some suggestion that the decision could throw something of a curve ball into GOP efforts to raise the debt limit should Democrats demand a legislative solution to DACA to perhaps link with a debt limit hike. That remains to be seen however. Meanwhile over at the Fed the most noteworthy comments came from Fed Governor Brainard. She said in a speech in New York that “my own view is that we should be cautious about tightening policy further until we are confident inflation is on track to achieve our target”. She also said that “I am concerned that the recent low readings for inflation may be driven by depressed underlying inflation, which would imply a more persistent shortfall in inflation from our objective”. She made mention of there being a persistent shortfall from the Fed’s inflation target going back 5 years and also suggested that trend inflation may have moved lower. In fairness, it is no secret that Brainard is a well-known dove but the comments still seemed to catch the market out. Minneapolis Fed President Kashkari followed up with some fairly dovish comments of his own later on noting that “It’s very possible that our rate hikes over the past 18 months are leading to slower job growth, leaving more people on the sidelines, leading to lower wage growth, and leading to lower inflation and inflation expectations.” Closer to home the big news last night was the Guardian leaking that Britain will end the free movement of labour immediately after Brexit and bring in restrictions to deter all but highly-skilled EU workers. This came under the detailed proposals set out in an 82-page Home Office Proposal which for the first time detailed how the UK intends to approach the sensitive immigration issue. One has to imagine that this would not be taken well in Brussels and lends some weight to the hard Brexit case again. Whether or not this overshadows a planned speech by PM May later this month remains to be seen but it’ll be worth watching the EU reaction in the coming days. Over in Italy, it’s worth noting an FT article highlighting that leading populist parties are toning down their anti-EU rhetoric ahead of next year’s election. Luigi Di Maio, the candidate from the leading Five Star movement party said the party’s call for a referendum on Italy’s euro membership would only be a “last resort” and a bargaining chip to force a relaxation in EU fiscal rules. Similarly, the candidate from the Northern league party noted that it wants to be prepared for a collapse of the Euro, but not “blow up the EU monetary system”. Before we take a look at today’s calendar, we wrap up with other data releases from yesterday. In the US, factory orders for July fell -3.3% mom, but were in line with expectations. The final reading for the headline July durable goods orders print was worse than expected, at -6.8% mom (vs. -2.9% expected), but core durable goods rose +0.6% mom, slightly above last month and core capital goods orders also rose +1.2% mom (vs. +1.0% previously). Back in Europe, the final Eurozone service sector PMI for August came in at 54.7 (vs. 54.9 previously), with the revision mainly due to a -0.6pt revision in the French PMI to 54.9, which is the lowest reading since January. After the manufacturing PMI was confirmed at 57.4, the final reading for the Eurozone’s composite PMI was 55.7, unchanged versus July. DB’s Sidorov noted that the broad picture combines a gradual moderation in the services sector from strong levels, offset by new highs and increased capacity constraints in the manufacturing sector. Overall, the readings are still consistent with annual GDP growth of 2.5% for the Euro area. I n the UK, the service PMI for August fell 0.6pts to an 11-month low of 53.2 (vs. 53.5 expected), but the composite PMI was in line at 54.0, which points to a continuation of GDP growth at the 1.7% yoy rate recorded in 2Q. Looking at the day ahead, Germany’s July factory orders will be out early in the morning (+0.2% mom and +5.8% yoy expected). Then we have the Italian retail sales for July. Over in the US, the ISM non-manufacturing PMI, the Fed’s Beige book, trade balance and final Markit services and composite PMIs are also due. Away from the data, UK PM Theresa May will face opposition leader Jeremy Corbyn in Parliament and the IMF’s managing director Lagarde will speak at a conference in Korea. Elsewhere, President Trump will also meet House Speaker Ryan, Senate Leader McConnell and a few others to discuss the upcoming debt ceiling.
With the US markets closed today, market events this week will be dominated by G10 central bank meetings, among which the ECB stands out, but also notable will be the RBA, BoC and Riksbank. Consensus does not expect policy changes yet. There is also a busy calendar for the UK (PMIs, housing, IP and trade balance) along with GDP/IP releases elsewhere. In EMs, there will be monetary policy meetings in Brazil, Poland and Malaysia. Brazil BCB is expected to cut rates by 100bp. Central bank preview: The ECB remains trapped between a strong(er) EUR and a rapidly shrinking universe of monetizable bonds; as a result Draghi will emphasize the impact of a strong EUR on inflation dynamics but will refrain from disclosing the destiny of QE after the 2018 expiry. Given the recent EUR appreciation, the ECB will prefer waiting for the September FOMC before committing on QE. Most sellside desks call for the October meeting where BofA expects a 6m QE extension at €40bn/month. The RBA is also expected to remain on hold with communication potentially getting more interesting now that forecasts and Parliamentary testimony are out of the way. On the longer term, the domestic housing market in particular to have a more significant influence on monetary policy with the balance of risks favoring rates up. For the BoC, unexpectedly strong economic growth, below neutral o/n rates and the Fed on a hiking cycle means that the Canada should follow with a hiking cycle as well. This said, low inflation and inflation expectations along with CAD appreciation do not argue for urgency. As a result while some have said the BOC's meeting is "live", most expected the central bank to remain on hold in September and hikes +25bp in October. In other data: In the US, we get durable & capital goods orders (F), trade balance, ISM non-mfg and multiple Fed speakers in the agenda. In the Eurozone, beyond the ECB, we have retail sales, industrial production and GDP. In the UK, we have PMIs, industrial production, construction output, and trade balance. In Japan, we have monetary base, PMIs, trade balance and final print of Q2 GDP. In Canada, beyond central bank rates decision, we also have labor market report. In Australia, focus is on RBA's rates meeting, while other economic releases include trade balance, retail sales, GDP, home loans and investment lending. Below is a breakdown of key events by day, courtesy of Deutsche Bank: It’s a quiet start to the week today with Eurozone PPI and the Sentix investor confidence reading the only data of note. With the US closed there is no data scheduled across the pond. Onto Tuesday, Japan and China’s (Caixin) service and composite PMIs are due early in the morning. Then we have UK and Italy’s service and composite PMI for August. There is also the final readings for service and composite PMIs for the Eurozone, Germany and France. Elsewhere, the Eurozone’s retail sales and final readings for 2Q GDP are due. In the US, there is factory orders for July and final readings for durable goods and capital goods orders. Turning to Wednesday, Germany’s factory orders for July is the only data due out. Over in the US, the ISM non-manufacturing PMI, the Fed’s Beige book, trade balance and final Markit services and composite PMI are also due. For Thursday, Germany’s industrial production for July are due along with France’s trade balance and current account balance stats. Elsewhere, house price data in the UK and Q2 GDP (final revision) for the Eurozone is due. This is all before the ECB meeting around midday. Over in the US, there is initial jobless claims, continuing claims and final readings for Q2 nonfarm productivity due. Finally, on Friday, Japan’s trade balance and current account balance along with final readings for 2Q GDP will be due in early morning. China will also release its August import / export stats. In Europe, Germany’s trade balance, current account balance and export / imports stats are due. In the UK and France, industrial production, manufacturing production and trade balance stats are also due. Over in the US, there is the final reading for wholesale inventories along with consumer credit data. Away from the data, today we’ll have the second round of negotiations for NAFTA in Mexico. On Tuesday US congress returns from the August recess to tackle issues such as the debt ceiling. Elsewhere, Fed Governor Brainard, the Minneapolis Fed President Kashkari and Dallas Fed President Kaplan will speak at separate functions. Turning to Wednesday, UK PM Theresa May will face opposition leader Jeremy Corbyn in parliament and the IMF’s managing director Lagarde will speak at a conference in Korea. President Trump will also meet House Speaker Ryan, Senate Leader McConnell and a few others to discuss the coming debt ceiling. Then onto Thursday, in the UK, Brexit Secretary Davis faces questions in the House of Commons about the state of Brexit talks. In the US, Cleveland Fed President Mester and NY Fed President Dudley are schedule to speak. Elsewhere, the IMF Managing Director Lagarde, BOJ Deputy Governor and BOK Governor will meet for a two-day conference on growth in Seoul. Finally, on Friday, the Philadelphia Fed President Harker will speak on consumer behaviour in credit. It is a quieter, holiday-shortened week in the US, where the key economic release this week is ISM non-manufacturing on Wednesday. There are several scheduled speaking engagements by Fed officials this week. Additionally, the Beige Book for the September FOMC period will be released on Wednesday. Here is a full breakdown of what to expect courtesy of Goldman: Monday, September 4 U.S. Labor Day holiday. US markets are closed, and there will be no major data releases. Tuesday, September 5 07:30 AM Fed Governor Brainard (FOMC voter) speaks: Federal Reserve Governor Lael Brainard will give a speech on the economic outlook and monetary policy at a breakfast hosted by the Economic Club of New York. There will be a live webcast of the speech, and audience Q&A is expected. 10:00 AM Factory orders, July (GS -3.3%, consensus -3.2%, last +3.0%); Durable goods orders, July final (last -6.8%); Durable goods orders ex-transportation, July final (last +0.5%); Core capital goods orders, July final (last +0.4%); Core capital goods shipments, July final (last +1.0%): We estimate factory orders declined 3.3% in July following a 3.0% increase in June – driven by a decline in commercial aircraft orders. Core measures in the July durable goods report were strong, with better-than-expected growth and upward revisions in core capital goods shipments. 12:30 PM Minneapolis Fed President Kashkari (FOMC voter) speaks: Minneapolis Fed President Neel Kashkari will participate in a moderated Q&A at an event hosted by the Carlson School of Management in Minneapolis. Audience Q&A is expected. 01:10 PM Minneapolis Fed President Kashkari (FOMC voter) speaks: Minneapolis Fed President Neel Kashkari will also give a speech at a town hall event at the University of Minneapolis. Audience Q&A is expected. 07:00 PM Dallas Fed President Kaplan (FOMC voter) speaks: Dallas Fed President Robert Kaplan will participate in a moderated discussion at an event hosted by the Dallas Business Club. Audience and media Q&A is expected. Wednesday, September 6 10:00 AM ISM non-manufacturing index, August (GS 56.0, consensus 55.5, last 53.9): Regional service sector surveys were stronger on net in August, with notable gains in the New York Fed (+12.4pt to +11.7), Richmond Fed (+10pt to +22), Philly Fed (+8.4pt to +31.8), and Dallas Fed (+4.6pt to +15.1) non-manufacturing surveys. We expect the ISM non-manufacturing index to rebound 2.1pt to 56.0 in the August report following a 3.5pt decline in July. Overall, our non-manufacturing survey tracker rose 2.2pt to 56.3 in August, suggestive of a solid pace of growth in business activity. 08:30 AM Trade balance, July (GS -$44.8bn, consensus -$44.6bn, last -$43.6bn): We estimate the trade deficit widened by $1.2bn in July. The Advance Economic Indicators report last week showed a wider goods trade deficit, and elevated export growth in recent months suggests scope for deterioration in the trade balance. 09:45 AM Markit US services PMI, August final (consensus 56.9, last 56.9) 02:00 PM Beige Book, September FOMC meeting period: The Fed’s Beige book is a summary of regional economic anecdotes from the 12 Federal Reserve districts. The July Beige Book noted that activity expanded across all districts, though the pace of growth varied. Labor markets continued to tighten, and wage pressures had risen since the prior report. In the September Beige Book, we look for additional anecdotes related to the state of consumption, price inflation, and wage growth. Thursday, September 7 08:30 AM Nonfarm productivity (qoq saar), Q2 final (GS +1.4%, consensus +1.2%, last +0.9%); Unit labor costs, Q2 final (GS +0.1%, consensus +0.4%, last +0.6%): We estimate Q2 non-farm productivity will be revised up in the second vintage by 0.5pp to +1.4%, above the 0.75% trend achieved on average during this expansion. Similarly, we expect Q2 unit labor costs – compensation per hour divided by output per hour –to be revised down by 0.5pp to 0.1% (qoq saar). 08:30 AM Initial jobless claims, week ended September 2 (GS 250k, consensus 242k, last 236k); Continuing jobless claims, week ended August 26 (consensus 1,945k, last 1,942k): We estimate initial jobless claims rose 14k to 250k in the week ended September 2, reflecting a rise in Texas filings related to Hurricane Harvey. Continuing claims – the number of persons receiving benefits through standard programs – have declined in recent weeks, following an early-summer rebound. 12:15 PM Cleveland Fed President Mester (FOMC non-voter) speaks: Cleveland Federal Reserve President Loretta Mester will give a speech on the economic outlook and monetary policy at an event jointly hosted by the Economic Club of Pittsburgh, World Affairs Council, CFA Society of Pittsburgh, and the Association for Financial Professionals. Audience and media Q&A is expected. 07:00 PM New York Fed President Dudley (FOMC voter) speaks: New York Federal Reserve President William Dudley will give a speech titled “The U.S. Economic Outlook and the Implications for Monetary Policy” at an event hosted by the Money Marketeers of New York University. Audience Q&A is expected. 07:00 PM Atlanta Fed President Bostic (FOMC non-voter) speaks: Atlanta Federal Reserve President Raphael Bostic will take part in a moderated Q&A session on his views about the U.S. economy at an event hosted by the Atlanta Fed. 08:15 PM Kansas City Fed President George (FOMC non-voter) speaks: Kansas City Federal Reserve President Esther George will give a speech on the U.S. economy and monetary policy at the Omaha Economic Forum in Omaha, Nebraska. Audience Q&A is expected. Friday, September 8 8:45 AM Philadelphia Fed President Harker (FOMC voter) speaks: Philadelphia Federal Reserve President Patrick Harker will give a speech on “Consumer Finance Issues” at the New Perspectives on Consumer Behavior in Credit and Payments Markets Conference in Philadelphia. 10:00 AM Wholesale inventories, July final (consensus +0.4%, last +0.6%) 03:00 PM Consumer credit, July (consensus +$15.0bn, last +$12.4bn) Source: BofA, ING, Goldman, DB
While virtually nobody expects anything market shattering, or even moving, to be released during either Janet Yellen's or Mario Draghi's speeches tomorrow (recall from our preview what UBS said: "Don't expect news at Jackson Hole. Chair Yellen has told us what she wants to about normalization, for now. Financial stability matters, but it isn't new" and as such it will be "nothing to skip lunch over"), moments ago the full agenda of the 3-day central banker, tenured economist and assorted hanger-on symposium was released, and as expected both Janet Yellen and Mario Draghi are speaking, at 10am and 3pm ET respectively. What is strange is that while Yellen has only 30 minutes dedicated for her opening remarks, Draghi's luncheon address is a full hour long. Reminder of what bears look like at Jackson Hole The full agenda of tomorrow's key events is below. There are some additional panels held on Saturday which can be found on the Kansas City Fed's website. As another reminder, unlike previous years, few analysts expect anything material to be unveiled in tomorrow's academic setting as the ECB got cold feet on unveiling tapering once the EURUSD approached 1.20. Our full preview can be read here, and if that's not enough, here is a cheat sheet from the WSJ on what to expect. Talk of the Lodge The theme of this year's conference is "Fostering a Dynamic Global Economy": Kansas City Fed President Esther George will host an opening reception Thursday evening, but the conference will kick off in earnest Friday morning. At 10 a.m. EDT Friday, Fed Chairwoman Janet Yellen will deliver a speech on financial stability. Then, two research papers will be presented and discussed, followed by a panel discussion on international trade. Around 3 p.m. EDT, European Central Bank President Mario Draghi will deliver a much-anticipated luncheon address. On Saturday, two more research papers will be presented and discussed, followed by another panel discussion. Beyond the Agenda The formal program will focus on serious economic questions, but a number of subplots will play out as well into the weekend: This is Ms. Yellen's third Jackson Hole appearance in four years, but it could be her last as chairwoman. Her term is up in early February, and it isn't known if President Donald Trump will reappoint her -- plus, she hasn't said if she would accept the nomination. Handicapping who might replace her could be a topic of discreet discussion during the gathering. Mr. Draghi's Friday speech will be closely watched for clues about the path forward for the ECB's quantitative-easing program, with potentially big implications for European and world markets. The Fed already has signaled it may begin to shrink its balance sheet as soon as September, but officials have been split over whether a rate increase should be on the agenda for later this year. In interviews on the sidelines of the conference, Fed officials are likely to drop more hints about the path forward for monetary policy. For the fourth year in a row, the liberal Center for Popular Democracy's Fed Up campaign will be on hand for the Jackson Hole gathering. It organized a Thursday panel on why some economists think the Fed should consider raising its 2% annual inflation target and a Friday press conference "in which dozens of workers will rally in support of another term as chair for Janet Yellen with signs, costumes and theater," the group said. Last year, several top Fed officials sat down with the activists. You can take the central bankers out of Washington, but it seems likely that events back in the capital will still be on their minds. Mr. Trump's coming appointments to the Fed, possible changes to postcrisis regulations, the prospects for an overhaul of the tax code, the potential for unexpected shocks from trade disputes or a fiscal-policy mishap -- they could all be topics of conversation in Wyoming. Roll Call It's a star-studded attendance list for this year's conference, at least for the world of central banking: Fed governors Lael Brainard and Jerome Powell are in attendance, along with many leaders from the Fed's 12 regional banks, including New York Fed President William Dudley , Boston Fed President Eric Rosengren, Chicago Fed President Charles Evans , Cleveland Fed President Loretta Mester , Dallas Fed President Robert Kaplan , Minneapolis Fed President Neel Kashkari , San Francisco Fed President John Williams , Atlanta Fed President Raphael Bostic and, of course, Ms. George. In addition to Mr. Draghi, the roster includes a number of foreign central bankers, including Bank of Japan Gov. Haruhiko Kuroda , European Central Bank executive board member Benoît Coeuré , Bank of England deputy governor Ben Broadbent , Bank of Mexico Gov. Agustín Carstens , Riksbank Gov. Stefan Ingves and Bundesbank President Jens Weidmann . Several former Fed officials also will be in attendance, including former Fed Vice Chairmen Alan Blinder and Donald Kohn , former Kansas City Fed President Thomas Hoenig , and former Fed governors Kevin Warsh and Randall Kroszner . The list also includes a handful of current and former government officials: Andrew Olmem , special assistant to Mr. Trump on financial policy on the National Economic Council; David Malpass , the Treasury undersecretary for international affairs; Keith Hall , director of the Congressional Budget Office; Jason Furman , former chairman of the Council of Economic Advisers under President Barack Obama; and Glenn Hubbard , who was chairman of the Council of Economic Advisers under President George W. Bush. And of course, the conference is full of high-profile academics, such as Harvard University's Martin Feldstein (a former CEA chairman under President Ronald Reagan), Carmen Reinhart and Kenneth Rogoff ; Stanford economist John Taylor ; Alan Auerbach of the University of California-Berkeley; and Kristin Forbes of the Massachusetts Institute of Technology. --A number of those people -- including Messrs. Hubbard, Taylor and Warsh - have been in the mix as Fed watchers try to predict who might replace Ms. Yellen if she doesn't serve a second term at the Fed's helm. National Economic Council Director Gary Cohn , who Mr. Trump has said is a top candidate to lead the Fed, won't be in the audience. The attendance list has some notable absences: Vice Chairman Stanley Fischer isn't among the participants this year, nor is Philadelphia Fed President Patrick Harker or St. Louis Fed President James Bullard . Jackson Hole, 2016
In what should be a relatively quiet, mid-summer week if only on the global economic schedule even as domestic and global political tensions continue to set the general risk tone on any given day, the focus over the next few days will be on US retail sales on Tuesday and Industria Production on Thursday, as well as on monetary meeting minutes from the Fed and the ECB. Here, focus is on the inflation outlook and discussion of transitory vs persistent factors. The FOMC minutes will likely show general agreement about the roadmap for balance sheet normalization. Furthermore, a discussion over the neutral rate could be on the table, given the recent Fed talk. We also have the ECB minutes where EU economist focus is on FX and QE after Dec-17. The opening statement by the ECB's chief economist is likely to insist and possibly quantify on the impact of the stronger euro on the inflation outlook. BofA economists also see the potential for remarks on the recent tightening in wider monetary conditions in Europe, and the surge in the Euro. The US the spotlight is again with retail sales. Consensus expected a 0.4% rebound, implying a strong rebound following a 0.2% decline in June. Industrial production and the manufacturing surveys should, on balance, inch up. As SocGen's Mihcala Marcusen previews, "we expect a mixed bag on the data front globally, with strong 2Q GDP growth in Germany, Italy and Japan while we see a moderation in Chinese activity data and only a tepid rebound in US retail sales. The Fed and ECB minutes should provide more details on the extent of the discussion on the balance sheet normalisation timing for the Fed and on the QE extension announcement for the ECB" United States - Balance sheet start date in focus: Market participants will scour the July FOMC Minutes to see if the start date for the balance sheet normalisation was discussed, or even decided upon. Retail sales will be the main data release this week, as investors try to gauge the strength of the consumer after disappointing spending figures recently and concerns that consumers' budgets may be getting stretched. Euro area - Strong 2Q17 GDP growth in Germany and Italy: We expect strong preliminary 2Q17 GDP prints for Germany (SGe 0.9% qoq) and Italy (SGe 0.4% qoq) as well as confirmation of euro area 2Q GDP at 0.6% qoq. The overall robust growth momentum should also be reflected in solid euro area industrial production numbers. The ECB minutes of the July meeting could reveal more on the discussion of exchange rate effects and on the timing for the announcement of QE extension into 2018. United Kingdom: Inflation to rise but earnings growth to fall: After a brief dip, CPI inflation should rise from 2.6% to 2.7%. The unemployment rate could fall again from 4.5% to 4.4% but this is very uncertain. Total earnings growth should fall from 1.8% to 1.7%. Retail sales ex auto fuels should rise by 0.5% mom. DB breaks down key events on a day by day basis: Monday starts with the Eurozone’s industrial production (IP) stats for June. Onto Tuesday, Japan’s final reading for June IP and capacity utilisation stats as well as German’s preliminary 2Q GDP stats will be due early in the morning. Then UK’s July CPI, PPI and retail price index are due. Over in the US, there will be quite a lot of data, including: July retail sales, import / export price index for July, empire manufacturing stats, NAHB housing market index and US foreign net transactions for June. Turning to Wednesday, the Eurozone and Italy’s preliminary 2Q GDP stats are due. Then for UK, we have the July jobless claims and claimant count rate and the June ILO unemployment data. Across the pond, we get the FOMC meeting minutes along with the July housing starts and MBA mortgage applications stats. For Thursday, Japan’s July trade balance, exports/ imports data along with France’s ILO unemployment rate will be out early in the morning. Then the Eurozone’s July CPI and UK’s July retail sales are due. In the US, quite a lot of data again, including: July IP, conference board US leading index, the Philadelphia Fed business outlook survey, initial jobless claims and continuing claims stats. Finally on Friday, Germany’s PPI will be due early in the morning. Follow by the Eurozone’s June current account stats and construction output data. In the US, various University of Michigan sentiment index are also due The week's other events include on Wednesday, the NAFTA talks between US, Canada and Mexico kicks off in Washington. Then on Thursday, the ECB will publish the account of its July policy meeting and the Fed’ Kaplan will speak on Thursday and Friday. Finally, notable US companies due to report include: Home depot, Cisco, Target and Wal-Mart. Closer to home, we have RWE reporting. Finally, looking at only the US, here is Goldman with a full weekly breakdown including consensus estimates: The key economic data releases this week are retail sales on Tuesday and industrial production on Thursday. There are a few scheduled speaking engagements by Fed officials this week. In addition, the minutes from the July FOMC meeting will be released on Wednesday. Monday, August 14 There are no major economic data releases. Tuesday, August 15 08:30 AM Retail sales, July (GS +0.4%, consensus +0.4%, last -0.2%); Retail sales ex-auto, July (GS +0.3%, consensus +0.3%, last -0.2%); Retail sales ex-auto & gas, July (GS +0.4%, consensus +0.4%, last -0.1%); Core retail sales, July (GS +0.5%, consensus +0.4%, last -0.1%): We estimate core retail sales (ex-autos, gasoline, and building materials) rose 0.5% in July, reflecting above-trend growth in the non-store category due to record sales on Amazon Prime Day. We also see scope for re-acceleration in core retail sales, following two consecutive monthly declines. We estimate a relatively firm increase in the ex-auto ex-gas component of 0.4%. A third monthly drop in gas prices should weigh on ex-auto sales, where we forecast a 0.3% increase. We look for a 0.4% increase in the headline measure, boosted by sequential improvement in unit auto sales. 08:30 AM Import price index, July (consensus +0.1%, last -0.2%) 08:30 AM Empire state manufacturing survey, August (consensus +10.3, last +9.8) 10:00 AM Business inventories, June (consensus +0.4%, last +0.3%) 10:00 AM NAHB housing market index, August (consensus +64, last +64): Consensus expects the NAHB homebuilders’ index to remain flat after a weaker than expected July report in which the index declined two points. Overall, the homebuilders’ index—which we have found to be a decent leading indicator of housing starts—suggests that the trend in construction activity is slowing, perhaps reflecting the lagged effect of higher mortgage rates. 04:00 PM Total Net TIC Flows, June (last +$57.3bn) Wednesday, August 16 08:30 AM Housing starts, July (GS flat, consensus +0.4%, last +8.3%); Building permits, July (consensus +2.8%, last -4.9%): We estimate housing starts were flat in July, reflecting a retracement in multifamily following a 13% rebound in June. While the impact of higher mortgage rates has likely weighed on single family demand and construction this year, we suspect this drag is now waning, particularly given the pullback in mortgage rates since March. 02:00 PM Minutes from the July 25-26 FOMC meeting; The July FOMC meeting hinted at a September announcement of balance sheet normalization, by noting in the post-meeting statement that the Committee expects to begin normalization “relatively soon.” The statement made several small tweaks to the description of economic conditions, acknowledging that inflation is now running “below” its 2% target (vs. “somewhat below” in the June statement), while upgrading the characterization of job growth. In the minutes, we will look for further discussion of the soft inflation data and the committee’s views on the weights attached to the inflation misses relative to the risk of a labor market overshoot. Thursday, August 17 08:30 AM Initial jobless claims, week ended August 12 (GS 245k, consensus 240k, last 244k); Continuing jobless claims, week ended August 5 (consensus 1,968k, last 1,951k): We estimate initial jobless claims rose 1k to 245k in the week ended August 12. Initial claims can be particularly volatile around this time of year due to annual auto plant shutdowns, and we expect a rise in factory closures to boost claims for this week. Offsetting this, we note elevated levels of claims in California and South Carolina, which could reverse in the upcoming report. Continuing claims – the number of persons receiving benefits through standard programs – have started to trend down again in recent weeks, following an early-summer rebound. 08:30 AM Philadelphia Fed manufacturing index, August (GS +19.0, consensus +18.3, last +19.5): We estimate the Philadelphia Fed manufacturing edged down 0.5pt to +19.0 in August, after the index climbed to a cycle high of 38.8 in May. We expect the index to soften a bit, but likely to levels still consistent with a solid pace of expansion in manufacturing activity. 09:15 AM Industrial production, July (GS +0.5%, consensus +0.3%, last +0.4%); Manufacturing production, July (GS +0.4%, consensus +0.3%, last +0.2%); Capacity utilization, July (GS +76.8%, consensus +76.8%, last +76.6%): We estimate industrial production increased 0.5% in July, reflecting solid growth in utilities. We expect manufacturing production rose 0.4% despite a pullback in auto production, reflecting broad cyclical improvement in other manufacturing categories. 01:00 PM Dallas Fed President Kaplan (FOMC voter) speaks: Dallas Fed President Robert Kaplan will speak at the Lubbock Chamber of Commerce in Lubbock, Texas. Audience & media Q&A is expected. 01:45 PM Minneapolis Fed President Kashkari (FOMC voter) speaks: Minneapolis Fed President Neel Kashkari will participate in a moderated Q&A session at the Edina Rotary Club in Edina, Minnesota. Audience Q&A is expected. Friday, August 18 10:00 AM University of Michigan consumer sentiment, August preliminary (GS 94.4, consensus 94.0, last 93.4): We estimate the University of Michigan consumer sentiment index rose 1.0pt to 94.4 in the August preliminary reading, following two consecutive declines from its May peak. Our forecast reflects mostly firm higher frequency consumer surveys and decent stock market performance over the last two weeks. 10:15 AM Dallas Fed President Kaplan (FOMC voter) speaks: Dallas Fed President Robert Kaplan will participate in a moderated Q&A at the Dallas County Community College District Conference Day in Dallas, Texas. Audience Q&A is expected. Source: BofA, DB, Goldman
Following a sleepy overnight session, US futures are flat as are markets in Europe, while Asian stocks rose despite overnight trade data from China which unexpectedly missed across the board. As reported last night, Chinese export growth was the slowest since February while Import growth the weakest since Dec 2016, as both missed consensus estimtes. Paradoxically, the bad report sent the MSCI EM Asia stock index higher for a third day to its highest since November 2007, with the poor Chinese trade data promptly spun as positive: "It looks like China’s trade data is taken as a half-full omen with the softer (than expected) exports mitigating risks of U.S. protectionism,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank in Singapore." Continuing an unprecedented run of record highs, global stocks inched up to a new all-time high on Tuesday, shrugging off China's data. The MSCI's all-country world index ticked up to set a new record high at 480.76 points. It was last up less than 0.1 percent at 480.54 points. The index, which tracks shares in 46 countries, is on track for longest monthly winning streak since 2003. According to Reuters, "shares across the globe have been hitting record highs in record low volatility supported by a benign environment for global growth." "Data continue to suggest a synchronized global expansion across both advanced and emerging market economies. Spill-overs from the rebound in emerging market demand are reflected in the fastest growth in world trade since 2010," said Fitch chief economist Brian Coulton. The Chinese trade data was so poor, pardon great, the Chinese yuan (and South Korean won) led gains as emerging Asian currencies advance on a broadly weaker U.S. dollar. The onshore yuan strengthened as much as 0.4% to 6.6970 vs USD for biggest intraday rally since July 27, rising above 6.7 for the first time since October. In currency markets, the dollar dipped for a second consecutive day after rising on Friday following stronger-than-expected U.S. jobs numbers, which some analysts said bolstered the case for the Federal Reserve to raise interest rates further. However, many in markets remain unpersuaded the Fed will increase the cost of borrowing again this year. St Louis Fed President James Bullard said on Monday the central bank could leave rates where they are for now because inflation was not likely to rise much. "(They) seemed to oppose further rate hikes. That means they exactly reflect the current market expectations, which are limiting the dollar’s appreciation," wrote analysts at Commerzbank in Frankfurt in a morning note to clients. "It is still inflation that poses the problem," they added Overnight the Aussie dollar advanced on rising business confidence but - unlike the Yuan - was weighed down by disappointing China trade data. The Euro rose for second day as upside momentum remains strong, and last Friday's strong payrolls beat is largely forgotten. West Texas Intermediate crude started on the back foot but reversed during European hours; WTI crude continued its rise, and is rapidly approaching $50 again: the question is whether it can take out the resistance level and hold above it. This morning, all eyes will be on the South Africa’s rand as lawmakers prepare to decide the fate of President Jacob Zuma in a secret ballot at 2:00pm local time (8:00am ET). The currency steadied after yesterday’s jump even as 1-week implied vol surged to a 4 month high. Markets remain in a holding pattern, with investors seeking catalysts amid the summer slowdown and the S&P hasn't moved more than 0.3% intraday for 13 consecutive days: the longest stretch on record. The focal point of this week looks set to be Friday’s U.S. inflation data, which will be key to the interest-rate outlook of the world’s biggest economy, Bloomberg writes. Two Federal Reserve officials said on Monday that soft inflation was a problem, but played down the risk of market disruption when the central bank starts shrinking its balance sheet. “Markets are in sleep mode,” Hussein Sayed, a strategist at Forextime Ltd., a retail currency broker, wrote in an emailed note. “Limited news flow is what can be blamed for the narrow trading ranges, but expect this to change as we get closer to Friday’s U.S. CPI release.” MSCI's broadest index of Asia-Pacific shares outside Japan proved relatively resilient, inching up 0.2 percent and back toward decade highs. Hong Kong's Hang Seng closed up 0.6 percent. South Korea dipped 0.2 percent, while Japan's Nikkei eased 0.3 percent and China's main markets edged up 0.1 percent. Japan’s Topix index fell 0.2 percent at the close with SoftBank Group Co. declining even after profit topped estimates. Sony Corp. gained after it was added to the JPX-Nikkei Index 400. Australia’s S&P/ASX 200 Index lost 0.5 percent and South Korea’s Kospi index dropped 0.2 percent. The Stoxx Europe 600 Index was slightly weaker, headed for a second day of declines as most benchmark gauges in the region fell, though moves were not large. Germany’s DAX Index declined less than 0.05 percent while the U.K.’s FTSE 100 Index sank 0.1 percent. The MSCI All-Country World Index rose less than 0.05 percent to the highest on record. Energy company shares rose as oil prices steadied from recent falls as sources told Reuters Saudi Arabia would cut crude supplies next month. Futures on the S&P 500 Index dipped 0.1 percent to 2,475.25. Treasuries were little changed before a $24 billion three-year note auction, the first of three debt sales this week. In currencies, the euro climbed 0.1 percent to $1.1814. The Bloomberg Dollar Spot Index fell 0.1 percent, the largest fall in more than a week on a closing basis. The British pound declined less than 0.05 percent to $1.3044. South Africa’s rand rose less than 0.05 percent to 13.2396 per dollar. In rates, the yield on 10-year Treasuries rose one basis point to 2.26%. Britain’s 10-year yield climbed one basis point to 1.14%. In commodities, gold gained 0.2 percent to $1,260.24 an ounce, the biggest rise in more than a week. West Texas Intermediate crude rose 0.6% to $49.48 a barrel, the highest in more than a week. Bulletin Headline Summary from RanSquawk European equities trade with little in the way of firm direction. Miners underperform post-Chinese trade data FX markets also trade in a tentative manner with newsflow light throughout the EU session thus far Looking ahead, highlights include JOLTS, APIs and a US 3yr note auction Market Snapshot S&P 500 futures down 0.06% to 2,476.00 STOXX Europe 600 down 0.05% to 381.83 MSCI up 0.1% to 161.47 MSCI ex Asia up 0.2% to 532.62 Nikkei down 0.3% to 19,996.01 Topix down 0.2% to 1,635.32 Hang Seng Index up 0.6% to 27,854.91 Shanghai Composite up 0.07% to 3,281.87 Sensex down 0.8% to 32,028.33 Australia S&P/ASX 200 down 0.5% to 5,743.75 Kospi down 0.2% to 2,394.73 Gold spot up 0.3% to $1,260.97 U.S. Dollar Index down 0.2% to 93.30 German 10Y yield fell 0.4 bps to 0.455% Euro up 0.2% to 1.1813 per US$ Brent Futures up 0.3% to $52.54/bbl Italian 10Y yield fell 2.7 bps to 1.703% Spanish 10Y yield fell 2.1 bps to 1.438% Top Overnight News Republicans struggling to pass a major tax overhaul that doesn’t add to the federal deficit are discussing a kind of compromise: mixing permanent revisions with temporary rate cuts for individuals and businesses St. Louis Fed President James Bullard and Minneapolis’s Neel Kashkari said soft U.S. inflation was a problem, broadly in line with expectations that officials will keep interest rates on hold when they meet next month and announce the start of a gradual process to trim their holdings of Treasuries and mortgage-backed securities. South Africa’s rand could surge if President Jacob Zuma is ousted by a motion of no confidence in the nation’s parliament, though gains would reverse if Zuma survives the vote, analysts say China’s trade surplus widened for a fifth month in July as export growth remained solid and imports moderated, keeping the spotlight on a trade gap U.S. President Donald Trump aims to narrow Google Fires Author of Divisive Memo on Gender Differences Citigroup Agrees to $130 Million Settlement of Libor Claims China’s Trade Surplus Widens for Fifth Month as Imports Moderate Pfizer Is Said to Weigh Sale of Erectile Dysfunction Treatment Liberty Global 2Q Operating Cash Flow Beats Highest Estimate Rental Car Stocks May Move After Avis Cuts Profit Forecast InterContinental First Half Revenue Misses Estimates Pandora CEO Warns of Challenging U.S. Market Ahead; Shares Sink McDonald’s to Increase Restaurants in China to 4,500 from 2,500 Disney, Fox May Move After Positive Ad Market Comments From CBS AMD to Shift Some Orders to TSMC: Commercial Times China Keeps More Steel at Home as Exports Tumble to 2013 Low Wells Fargo Is Said to Face SF Fed Inquiry on Car Insurance: NYT Asian equity markets failed to sustain the momentum from the record closes seen in DJIA and S&P 500, as sentiment in the region soured amid relatively quiet news flow and as participants digested the latest Chinese trade data. ASX 200 (-0.6%) and Nikkei 225 (-0.3%) saw early selling pressure, with the Australian market the underperformer on broad based declines, aside from the mining sector which remained resilient after continued gains in iron ore prices. Hang Seng (+0.6%) and Shanghai Comp (+0.1%) were initially subdued after Chinese Imports and Exports both missed estimates, while regulatory concerns also persisted with the PBoC seeking to tighten fintech rules to prevent risks. However, both indices then recovered heading into the close. 10yr JGBs were flat as demand failed to garner support from the deterioration of risk tone in the region, while the 30yr auction was also uneventful with the results relatively in-line with the previous month. Chinese Trade Balance (CNY) (Jul) 321.2bln vs. Exp. 293.55b1n (Prey. 294.30bn). Chinese Exports (CNY) (Jul) Y/Y 11.2% vs. Exp. 14.8% (Prey. 17.3%) Chinese Imports (CNY) (Jul) Y/Y 14.7% vs. Exp. 22.6% (Prey. 23.1%) Chinese Balance of Trade (USD) (Jul) 46.70bln vs. Exp. 45.00bln (Prey. 42.75bn). Chinese Exports (USD) (Jul) Y/Y 7.2% vs. Exp. 11.0% (Prey. 11.3%) Chinese Imports (USD) (Jul) Y/Y 11.0% vs. Exp. 18.0% (Prey. 17.2%) Top Asian News HNA’s Singapore Partner Is Said to Explore Scaling Back Ties China Developers Sink as World’s Biggest Stock Rally Loses Steam Sony Bonds Lose Allure as Spread Too Tight, Says BNP Paribas Goldman Sachs TP Upgrade Pushes China Harmony to 11-Month High Hong Kong Stocks Advance on Earnings Optimism and Auto Sales Malaysia Weighs Dual-Class Shares as Exchanges Battle for IPOs Reliance Is Said to Plan Refinancing as $12 Billion Debt Matures Profit-Taking? SoftBank Drags Topix Down Despite Strong Earnings Directionless trade in another quiet summer trading session (Eurostoxx 50 flat), material names falling after mixed Chinese trade data as exports and imports missed expectations. Pandora among the worst performers in Europe following soft financial results. BTPs outperforming largely as yields fall to 6-week lows. As a reminder, yesterday's monthly bond purchases from the ECB showed the ECB bought more Italian bonds in July than the capital key would imply, as it bought EUR 9.623b1n Italian bonds, almost EUR 1.5bln more than the capital key would dictate. In turn, this has the GER-ITA 10Y spread tighten as much as 13bps. Top European News Rising U.K. Energy Imports Need Brexit Care, Centrica Says ECB Redemptions Boost Average Maturity of French Bond Purchases AA Hits Record Low; Credit Suisse Downgrades on Roadside Outlook Standard Life Has $4.8 Billion Outflows Before Aberdeen Deal Siltronic Drops After Sumco Wafer Capacity Expansion Plan Power Maker CEZ Boosts 2017 Earnings Forecast on Higher Margins Brexit Bill Somewhere Between Zero and EU100B, Jones Says U.K. Must Provide Clarity on Post-Brexit Laws, Top Judge Says In currencies, the Aussie saw some selling pressure following the Chinese Imports and Export misses on expectations. AUD/USD came off best levels overnight and is could look to retest 0.79. The greenback struggled throughout the US and Asian sessions, as the gains seen on Friday were retraced. Fed speech was the them in the US yesterday, however, comments from Bullard and Kashkari were largely rebuffed by markets. A marginal flight to safety further weighed on the US dollar, as twitter reports stated US satellites detected North Korea moving 2 anti-ship cruise missiles to patrol boat on the east coast over the past few days, according to officials. Both EUR & GBP gained ground against the dollar, with cable looking for a break of 1.3050, however, ran into some offers around 1.3055. EUR/USD saw similar price action, breaking through 1.18, however finding some resistance above these levels. In the Yen, a spike through Friday's post NFP range caused some escalated selling pressure in USD/JPY, as the pair broke through 110.70 overnight, bears will look to target the 110.00 handle to spark any continued downside pressure In commodities, relatively quiet in the commodity complex with oil prices slightly firmer. Of note, industry sources noted that Saudi Arabia noted that Saudi Arabia is to cut crude allocations in September by at least 520k bpd. Australia July Port Hedland iron ore exports fell to 37.9mln tonnes vs. Prey. 43.lmln tonnes. China Commodities Trade Data showed July YTD copper and product imports fell 15.2% Y/Y to 2.62m1n tonnes. Looking at the day ahead, there is the NFIB small business optimism index for July (103.5 expected) and the JOLTS job openings data. In China, the July CPI (1.5% yoy expected) and PPI (5.6% yoy expected) data will be out in early Wednesday morning. Notable US companies due to report include: Walt Disney, CVS Health, Gartner and Priceline. US Event Calendar 6am: NFIB Small Business Optimism, est. 103.5, prior 103.6 10am: JOLTS Job Openings, est. 5,700, prior 5,666 DB's Jim Reid concludes the overnight wrap If it wasn't for the fact that my exponentially increasing domestic financial responsibilities force me to act as professional as I can be, I'd be tempted to make today's EMR last no longer than a couple of sentences as all you really need to know about markets at the moment is that yesterday's move in the S&P 500 (+0.16%) added to the record daily run of less than 0.3% moves in either direction. It’s now 13 days since we had a larger move using daily data back to 1927. The second longest streak of this length was of 10 days which has happened twice in history. The most recent time was in England's solitary football World Cup winning year (06 Jan 1966 - 19 Jan 1966), and the other between 15 Nov 1961 and 29 Nov 1961. So these continue to be remarkable financial times we are living through. To put the steady but relentless rally in the S&P in context, it is now 73 trading days since the S&P increased by more than 1% in any one day. Give it another 7 days and we will beat the prior record set back in November 06 and March 07. Although, given the current lull in the activity (VIX now back to below 10), we might even get close to the 100 day record set back in mid-July 1995 to early Dec 1995. To punctuate the quiet, this week we will get to hear the latest thinking from a few Fed speakers. Overnight, both the St. Louis Fed president Bullard and Minneapolis Fed Chief Kashkari sounded a bit dovish. On rates, Bullard noted that the Fed funds rate target is “likely to remain appropriate over the near term”, considering recent inflation data has “surprised to the downside”. On balance sheet unwind, Bullard is ready to start the Fed’s balance sheet unwind in September and Kashkari noted that shrinking the bank’s large portfolio will be very orderly and won’t be disruptive to financial markets. On inflation, Kashkari said “inflation has been coming up short, relative to our 2% target” and cautioned “that actually matters…because in future crisis, we really need people to believe in us". This morning in Asia, China’s July exports were lower than expectations at 7.2% yoy (vs. 11% expected; 11.3% prior), although imports were also lower at 11% yoy (vs. 18% expected), leading to a stronger trade surplus of $46.7bn (vs. $45bn expected). Asian markets sold off a little post the Chinese data, but recovered to be slightly down as we type. Across the region, the Nikkei (-0.3%), Kospi (-0.1%), and Shanghai Comp (-0.2%) are lower with the Hang Seng (+0.1%) slightly higher. Back to last night's session and US bourses strengthened further, with the S&P 500 and the Dow up slightly (+0.1% to +0.2%) and remaining at record levels. That said, trading volume was thin in the S&P, with the daily value traded at 0.14% of the index market cap, which is only ~40% of the historical average. Within the S&P, modest gains in consumer staples and IT were largely offset by losses in energy (-0.9%) and financials (-0.2%). In Europe, the Stoxx 600 dipped 0.1%, with a rise in the materials sector (+0.7%) largely shrugging off the softer German industrial data. Across the region, the DAX slipped -0.3%, while other markets were slight up, with the FTSE 100 (+0.3%), CAC (+0.1%) and the Italian FTSE MIB (+0.4%) higher. As a stock take for European reporting season thus far, DB’s Wolf von Rotberg notes that of the 74% of Stoxx 600 companies that have reported, 54% have beaten EPS expectations (in line to historical average, but lower than 1Q at 61%). EPS growth is running at 19%, ahead of the 8% consensus expectation for the companies that have reported so far. EPS beats have been strongest for tech (69%), energy (67%) and financials (66%, particularly banks). Excluding energy and financials, EPS growth does drop to ~3% for companies that have reported thus far. Over in government bonds, yields were broadly lower, with the German bunds (2Y: +1bp; 10Y: -1bps), Italian BTPs (2Y: unch; 10Y: -2bps) and OATs (2Y: +1bp; 10Y: -1bp) all slightly lower at the long end of the curve. Gilts were down 4bps at both the 2Y and 10Y after weaker consumer data (see below). Over in the US, the 10Y fell marginally (-1bp) yesterday, but has recovered a little this morning. Turning to currency markets and the Euro continues to edge higher, with the Euro/USD up 0.2% and Euro/Sterling up 0.3% to 0.905, which represent a ~7.5% gain since May and now getting close to its one year high of 0.9118. Elsewhere, the US dollar index dipped 0.1% overnight. In commodities, WTI oil slipped 0.4%, following reports of rebounding Libyan supply and compliance issues with promised OPEC production cuts only 86% in July. Currently, producers have gathered in Abu Dhabi for a two day meeting to discuss oversupply issues. So watch for any headlines. Elsewhere, precious metals were broadly unchanged (Gold +0.1%; Silver flat), while industrial metals were up modestly (Copper +0.7%; Aluminium +2.5%), Iron ore has continued to increase, up 2.8% overnight to be ~43% higher than its June low. Away from the markets, as part of its annual stress tests designed by the Fed and FHFA,Fannie Mae and Freddie Mac would need to draw between $34.8bn to $99.6bn in Treasury aid under a "severely adverse" scenario, with key assumptions including: i) a 6.5% decline in GDP, ii) a rise in the unemployment rate to 10% and iii) a 25% fall in home prices. Elsewhere, the rhetoric from North Korea has heated up, with its Foreign Minister declining to negotiate over its nuclear program until the US ceases hostile policies and noted that its nuclear weapons will only be used against US and its allies, and that the state will make the US pay dearly. Before we take a look at today’s calendar, we wrap up with other data releases from yesterday. In the US, consumer credit was lower than expectations, up US $12.4bn in June (vs. $15.8bn expected; $18.3bn previous), leading the throughyear growth rate to slow a tenth to 5.7% yoy. Monthly growth in non-revolving credit fell to a 12-month low and was mainly responsible for the slowdown in overall growth. In Germany, the June industrial production stats were lower than expectations at -1.1% mom (vs. 0.2% expected) and 2.4% yoy (3.7% expected). However, despite the decline in June, annualized growth in output through Q2 stood at a sturdy 7.1% saar. In UK, the BRC retail sales monitor for like for like sales in July was in line at 0.9% yoy, which contrast the Visa-Markit survey earlier which pointed to a 0.8% yoy decline in consumer spending in July (vs. -0.2% previous, longest streak of declines since 2013). Elsewhere, the Halifax house price index rose 0.4% mom in July (vs. 0.3% expected), with the throughyear growth in the three-month average in line at 2.1% yoy. Looking at the day ahead, Germany’s June trade balance (23bn expected), current account balance (24.5bn expected), export and import stats (both 0.2% mom expected) are due in early morning. France will also report its June trade balance and current account figures. Over in the US, there is the NFIB small business optimism index for July (103.5 expected) and the JOLTS job openings data. In China, the July CPI (1.5% yoy expected) and PPI (5.6% yoy expected) data will be out in early Wednesday morning. Notable US companies due to report include: Walt Disney, CVS Health, Gartner and Priceline. Closer to home, we have Deutsche Post due to report in Europe.
When it comes to inflation in the US, there are generally two schools of thought:one is that inflation is woefully - and purposefully for political means - mismeasured, and that the real inflation is orders of magnitude higher than what the BLS, with its endless array of hedonic adjustments, reports. We discussed this view in May when we presented a presentation by Devonshire Research, which showed that "contrarian" CPI is closer to 8%, not the "post-modern" accepted rate of roughly 3%. And then there is the Fed/BLS/academic school which ignore real-world prices (and shrinkflation), and instead fixes on the core CPI number reported monthly by the BLS, which as is widely known, has been well below the Fed's "target" of 2-3%. Of course, even the Fed is not blind to the soaring cost of rent, healthcare and education, but it conveniently masks these up by assigning specific, and very low, weights to these "outlier" items in the BLS' inflation basket so that overall inflation appears surprisingly tame to most Americans who see a vastly different reality every time they go shopping. It was the second view that St. Louis Fed president James Bullard was more focused on today during a speech delivered at the 2017 conference of America’s Cotton Marketing Cooperatives on Monday. Speaking about inflation, Bullard noted that the U.S. inflation rate has been below the FOMC’s 2 percent inflation target since 2012 saying “recent inflation data have surprised to the downside and call into question the idea that U.S. inflation is reliably returning toward target.” He also examined several inflation measures that try to control for particularly volatile movements in individual prices and noted that those readings have been lower this year. Bullard added that global commodity prices have been an important factor affecting U.S. headline inflation. “Crude oil prices, in particular, tend to influence the headline inflation rate,” he said, adding that global commodity prices are sensitive to perceived and actual supply and demand developments in the global crude oil market. Another factor - and with this we actually agree - may be the financialization of global commodity markets in recent years, which may have made many commodities more highly correlated with oil prices than they otherwise would have been, Bullard noted. Amusingly, Bullard - perhaps thinking of the Fed's $4.4 trillion balance sheet - said that "it is hard to find good explanations for the low-inflation era being experienced by the U.S., but the impact of new technology could be one of the forces influencing price pressures." To be sure, one thing that the Fed fails to mention when talking about inflation is that the central bank usually envisions wage inflation, and here Bullard and his peers are spot on that there has been no inflation whatsoever. Even his colleague, Neel Kashkari said in a subsequent appearance, tha the US "hasn't seen wages grow very quickly." Bullard also said that "recent labor market outcomes have been relatively good", but do not signal a substantial upside for inflation, and in the latest Fed cop out, added that "Nominal wages are not a good predictor of future inflation,” noting “they tend to be a lagging indicator." There was the cursory discussion of the now defunct Phillips Curve: Bullard said that recent labor market outcomes have been relatively good and discussed the question of whether the low U.S. unemployment rate—at 4.3% in the July reading—might signal a substantial rise in inflation. “The short answer is no, based on current estimates of the relationship between unemployment and inflation,” he said. “Even if the U.S. unemployment rate declines substantially further, the effects on U.S. inflation are likely to be small.” In looking at U.S. economic growth, Bullard said data since the financial crisis suggest that the U.S. has converged to real GDP growth of 2 percent, which is slow by historical standards. “Second-quarter real GDP growth showed some improvement from the first quarter, but not enough to move the U.S. economy away from a regime characterized by 2 percent trend growth,” he said. Real GDP grew at an annual rate of 1.9 percent in the first half of 2017. “The 2 percent growth regime appears to remain intact,” he added. The silver lining, according to Bullard, will come from abroad: he said that the IMF upgraded its world economic outlook for 2017, with key upgrades for Japan, Europe and China, and blamed the hawkish ECB for the weaker dollar: “The value of the U.S. dollar has declined in 2017, a consequence of the brighter growth outlook for Europe and expectations for a somewhat more hawkish European Central Bank,” he added. In addition to inflation, the FOMC non-voter had some comments on monetary policy, and when discussing the Fed balance-sheet unwind, said “I am ready to get going in September. I don’t know where my colleagues will come down on that” while on rates he said that “we think best policy would be to leave rates where they are.” It's not clear just who the "we" included. Refuting recent statements from virtually every banks, Bullard remained optimistic and said the upcoming balance-sheet unwind "is going to be very slow and I don’t think there will be a lot of impact on the markets." Finally, on the hot topic of whether the Fed is seeking to push asset prices lower and tighten financial conditions, he said that “financial conditions indexes are at very easy conditions” right now and when asked about complacency in financial markets, says “I don’t think low volatility or low stress necessarily signals anything.” In other words, everything is great, wages will rise at some point, inflation will (eventually) converge with the Fed's modeled 2.0% core CPI, balance sheet unwind is priced in, and as for the market, Bullard has no concerns whatsoever.
With the traditional post-payrolls market lull setting in, and most trading desks taking a week or two off, it will be a relatively quiet week with attention turning to inflation data with releases in the US, China, Norway & Switzerland, a key factor as central banks consider if/when to tighten in the near future. The US print will gain most attention: a strong number will validate the Fed's balance sheet unwind intentions and a potential December rate hike. The major US release for the week comes on Friday in the form of July’s CPI. As RanSquawk notes, analysts expect the headline to come in at 1.8% YY from 1.6% last time out, while the core reading is expected to rise by 1.8% YY from 1.7% last time out. The core metric has missed expectations over the last four releases. HSBC opines that “One major reason why core inflation has softened this year has been a slowdown in the pace of increase in rents.” At its most recent decision the Federal Reserve noted that it is “monitoring inflation developments closely” while it is of the belief that “inflation will remain somewhat below 2% in near term, but stabilise around 2% in medium-term.” This is of course against a back drop of limited wage growth. It is also worth noting that North American liquidity will be lower on Monday owing to a Canadian national holiday. Other releases of note during the week: Monday US Fed Labour Market Conditions Index (Jul) Tuesday US JOLTS Job Openings (Jun) Wednesday US Nonfarm Productivity (Q2) US Unit Labour Costs (Q2) US Wholesale Inventories (Jun) Thursday US PPI (Jul). There will be some July China macro data released, starting with FX reserves on Monday. Chinese trade data for July is due on Tuesday, with analysts expecting the surplus to widen to USD 46.08bln from USD 42.77bln last time out. HSBC believe that “exports growth likely remained strong in July supported by still resilient external demand.” The latest Caixin manufacturing PMI gives credence to this view, as it pointed to new export orders expanding at a faster pace. On the import front HSBC expect that “import growth remained strong, supported by the broad-based nature of the economic recovery.” In EM, there are monetary policy meetings in Mexico, Peru and the Philippines. Other releases of note during the week: Monday Chinese FX Reserves (Jul) Tuesday Japanese Current Account (Jun) Australian NAB Business Survey (Jul) Wednesday Australian Housing Finance Data (Jun) Thursday Australian Melbourne Institute Inflation Expectations (Jul) During the week: Chinese New Yuan Loans & Money Supply Data (Jul) US inflation, Fedspeak & China data After a robust NFP report, focus this week turns to US inflation prints. We expect core CPI to accelerate to a 0.2% m/m clip in July, ending a four-month streak of subdued prints. We also hear from several Fed speakers, including NY Fed President Dudley. July macro data from China will also be released over the next two weeks, starting with Monday's FX reserves data. Our economists expect the July reading of activity growth to moderate from June's strong levels. CPI likely stayed flat, while PPI may continue to ease on base effects. Meanwhile, headline new credit data have likely declined, but M2 growth may rebound modestly. The week ahead in Emerging Markets There are monetary policy meetings in Mexico, Peru and the Philippines. Sovereign rating review in South Africa In other data In the US, inflation will be the main focus, but we also have non-farm productivity and unit labor costs, the monthly budget statement and several Fed speakers. In the Eurozone, a very quiet week ahead with no key data releases. We have final CPI and industrial & manufacturing production for Germany, France, Italy and Spain. In the UK, we get industrial & manufacturing production, construction output and trade balance. In Japan, we get the current account and trade balance, money supply, machine orders and PPI. In Australia, RBA Governor Lowe is due to appear before the parliamentary economic committee and we hear a speech by Assistant Governor (Financial Markets) Kent. On the data front, we receive both consumer and business sentiment and housing finance approvals. In New Zealand, focus will be on the RBNZ, though we also get the manufacturing PMI and RBNZ Governor Wheeler will also appear before Parliament Select Committee. A detailed breakdown of the main weekly events courtesy of DB's Jim Reid Monday starts with Germany’s industrial production figures for June in early morning, followed by UK’s July Halifax house price index and then US’s consumer credit stats for July. On Tuesday, Japan’s balance of payments and trade balance figures for June will be out in early morning. Then Germany’s June trade balance, current account, export and import stats are due. France will also report its June trade balance and current account figures. Over in the US, there is the NFIB small business optimism index for July. Turning to Wednesday, China’s CPI and PPI for July will be out in early morning. Later on, Italy’s June industrial production figures and Bank of France’s business sentiment indicator are also due. Over in the US, there is the 2Q nonfarm productivity and unit labour costs data, June wholesale inventories as well as the MBA mortgage applications. For Thursday, the June industrial production and manufacturing production figures for UK and France will be out. Further, June trade balance stats for UK and Italy are also due. Over in the US, we have the July PPI data, the monthly budget statement as well as the initial jobless claims and continuing claims figures. On Friday, the final CPI figures for Germany, France and Italy will be released. Over in the US, CPI stats for July are also due. Onto other events, today starts with speeches from the Fed’s Bullard and the Fed’s Kashkari, followed by the OPEC/Non-OPEC joint technical committee meeting in Abu Dhabi. Then on Thursday, the Fed’s Dudley will speak. Onto Friday, the Fed’s Kaplan and Fed’s Kashkari will also speak. Finally we'll still have earnings season continuing on both sides of the Atlantic but we're now past the peak. * * * Finally, here is a table from BofA and guidance from Goldman with a breakdown of the key US events together with consensus estimtes The key economic release this week is the CPI report on Friday. There are several scheduled speaking engagements by Fed officials this week. Monday, August 7 11:45 AM St. Louis Fed President Bullard (FOMC non-voter) speaks: St. Louis Fed President James Bullard will give a speech on the U.S. economy and monetary policy at the America’s Cotton Marketing Cooperatives’ annual conference in Nashville, Tennessee. Audience and media Q&A is expected. 01:25 PM Minneapolis Fed President Kashkari (FOMC voter) speaks: Minneapolis Fed President Neel Kashkari will participate in a moderated audience Q&A session at an event hosted by the Sioux Falls Rotary Club in South Dakota. 03:00 PM Consumer credit, June (consensus +$15.25bn, last +$18.41bn) Tuesday, August 8 10:00 AM JOLTS job openings, June (consensus 5,700k, last 5,666k) Wednesday, August 9 08:30 AM Nonfarm productivity (qoq saar), Q2 preliminary (GS +0.6%, consensus +0.7%, last flat); Unit labor costs, Q2 preliminary (GS +1.1%, consensus +1.0%, last +2.2%): We estimate non-farm productivity increased 0.6% in Q2 (qoq ar), modestly below the 0.75% average achieved during this expansion. We expect unit labor costs – compensation per hour divided by output per hour – to increase 1.1% (qoq saar). 10:00 AM Wholesale inventories, June final (consensus +0.6%, last +0.6%) 11:00 AM Cleveland Fed President Mester (FOMC non-voter) speaks: Cleveland Federal Reserve President Loretta Mester will give the keynote speech at the Community Bankers Association of Ohio’s Annual Convention in Cincinnati, Ohio. 01:00 PM Chicago Fed President Evans (FOMC voter) speaks: Chicago Fed President Charles Evans will discuss current economic conditions and monetary policy in a closed group interview with representatives of the press in Chicago. 01:30 PM San Francisco Fed President Williams (FOMC non-voter) speaks: San Francisco Fed President John Williams will give a speech titled "Monetary Policy's Role in Fostering Sustainable Growth" in Las Vegas, Nevada. Audience and media Q&A is expected. Thursday, August 10 08:30 AM PPI final demand, July (GS flat, consensus +0.1%, last +0.1%); PPI ex-food and energy, July (GS +0.1%, consensus +0.2%, last +0.1%); PPI ex-food, energy, and trade, July (GS +0.2%, consensus +0.2%, last +0.2%): We estimate that headline PPI was flat in July, reflecting a modest rise in core producer prices offset by a decline in gasoline margins and energy prices. We estimate PPI ex-food, energy, and trade services rose by 0.2%. In the June report, PPI exceeded expectations as higher-than-expected food and core prices excluding trade services more than offset a retracement in the volatile trade services category. 08:30 AM Initial jobless claims, week ended August 5 (GS 245k, consensus 240k, last 240k); Continuing jobless claims, week ended July 29 (consensus 1,960k, last 1,968k): We estimate initial jobless claims rebounded 5k to 245k in the week ended August 5. Initial claims can be particularly volatile around this time of year due to annual auto plant shutdowns, and we expect a rebound in these factory closures to boost claims for this week. Additionally, we expect a rebound from depressed levels of jobless claims in California. Continuing claims – the number of persons receiving benefits through standard programs – have trended up recently after falling sharply in the first four months of the year. 10:00 AM New York Fed President Dudley (FOMC voter) speaks: New York Fed President William Dudley will give opening remarks at an “Economic Press Briefing on Wage Inequality in the Region” held at the Federal Reserve Bank of New York. Audience and media Q&A is expected. 02:00 PM Monthly budget statement, July (consensus -$55.5bn, last -$90.2bn) Friday, August 11 08:30 AM CPI (mom), July (GS +0.20%, consensus +0.2%, last flat); Core CPI (mom), July (GS +0.21%, consensus +0.2%, last +0.1%); CPI (yoy), July (GS +1.8%, consensus +1.8%, last +1.6%); Core CPI (yoy), July (GS +1.8%, consensus +1.7%, last +1.7%): We expect a 0.21% increase in July core CPI (mom sa), which would be its fastest pace since January and would produce a one tenth increase in the year-over-year rate (to +1.8%). Our forecast reflects a boost from the second California tobacco tax increase of the year – a roughly US$2 per pack increase effective July 1 – as well as stabilization in used car prices, and mean reversion in airfares, apparel, and lodging following recent weakness. We also expect a reprieve from cell phone plan disinflation in the communication category, as a price hike for some T-Mobile plans is likely to offset new discounts offered by a few smaller pre-paid carriers. We also expect an above-trend increase in education prices, reflecting firming college tuition inflation indicated by press reports and university budget summaries. We estimate a 0.2% rise in headline CPI, reflecting rising food prices but a modest decline in energy prices. This would be consistent with the year-over-year rate rising two-tenths to 1.8%. 09:40 Dallas Fed President Kaplan (FOMC voter) speaks: Dallas Federal Reserve President Robert Kaplan will take part in a moderated Q&A session at the sixth annual CPE day hosted by the University of Texas at Arlington’s Accounting Department. Audience and media Q&A is expected. 11:30 AM Minneapolis Fed President Kashkari (FOMC voter) speaks: inneapolis Federal Reserve President Neel Kashkari will participate in a moderated audience Q&A session at the Independent Community Bankers of Minnesota’s annual convention in Bloomington, Minnesota. Source: BofA, DB, Goldman
World stocks hit a new record high on Monday, as U.S. index futures followed Asian stocks on better-than-expected company earnings and strong US jobs data deflected attention from the rising geopolitical tension over North Korea's nuclear program. European stocks traded near session lows while Crude oil prices fall. The Bloomberg Dollar Spot Index was little changed ahead of speeches by the Fed's James Bullard and Neel Kashkari later Monday. Yields on U.S. and German Bunds rose off one-month lows hit at the end of last week, while the yield on China’s 10-year sovereign bonds climbs 3 bps to a two-month high of 3.67%, after Friday’s better-than-expected jobs data brightened investors’ outlook for the U.S. economy. The Dow Jones recorded its eighth consecutive record high on Friday, with MSCI's broadest index of Asia-Pacific shares outside Japan adding 0.5% on Monday. Helping global stocks hit record highs, of the nearly 1000 companies in the MSCI world index that have reported, 67% have beaten expectations, according to Reuters data. Of the MSCI Europe companies having reported, 61% have either met or beat expectations. But focusing on industrial firms – of which many depend on exports, and are sensitive to a stronger euro – the beat ratio is just 37%. Also the U.S. dollar dipped slightly but held on to much of Friday's gains - its biggest daily rise this year - after data showed the United States created more jobs than forecast last month. As a result, the MSCI World index rose above a peak breached late last month, setting a new all-time high of 480.09 on Monday. "The US made the most noise last week ... At the start of the new week, risk sentiment improved in Asia with investors continuing to show a certain degree of risk affinity," DZ Bank strategist Rene Albrecht said. For some analysts, Monday's pull back in the dollar backs some views in markets that Friday's rally may not have legs. The dollar index, which tracks the greenback against a basket of six global peers, inched back 0.2 percent to 93.361. It rallied 0.76 percent on Friday, its biggest one-day gain this year. The dollar slipped 0.2 percent against the euro to $1.1796 per euro, after surging 0.8 percent on Friday. "The most logical view here is the moves on Friday were clearly just a sizeable covering of USD shorts, from what was one of the biggest net short positions held against the USD for many years," Chris Weston, chief market strategist at IG in Melbourne, wrote in a note. For the dollar rally to gain momentum, the market needs to change its interest rate pricing, Weston added. Despite another drain in liquidity by the PBOC overnight. which soaked up another CNY60 billion in net reverse repos, Chinese industrial commodity metal soared, led by aluminum futures while steel rebar surged as much as 6.4% higher, before closing up 3.0% as iron ore closed up 6.5%. #Steel rebar futures in #China closed 6.4% higher; #IronOre closed 3% higher after surging as much as 6.5% intraday pic.twitter.com/xbFTMQY6Ql — YUAN TALKS (@YuanTalks) August 7, 2017 In the overnight FX session, kiwi slod 0.6% against greenback to 0.7368 while the euro rose as much as 0.2% to $1.1814, approaching its highest since early 2015, despite an unexpected drop in German industrial production in June. Output fell 1.1% in June after rising 1.2% in May, far below the estimated 0.2% increase and the first drop in six months. Production was up 2.4 percent from a year earlier. Still, with strong orders pointing to a likely pickup in manufacturing, the report is unlikely to mark a turning point for the German economy. Meanwhile, business confidence is at a record high and the Bundesbank sees growth continuing, even as momentum at the start of the third quarter lagged behind that of France, Italy and Spain for the first time in more than 12 years. The common currency rebounded following a slump against the greenback in the wake of U.S. jobs data on Friday. With EUR-USD parity now long forgotten, the next "big thing" on FX traders' minds is whether and when EUR-GBP parity may be achieved (with some penciling in the end of the year). “I’m maxing on the euro at $1.20 at the moment, and I’m happy for it to be poodling along for a little while until something new and different comes long,” David Bloom, global head of currency strategy at HSBC said in an interview with Bloomberg TV. “It could be tax reform in the U.S.” As Bloomberg writes, "the euro’s continued resilience is a testament to growing investor confidence in the growth story of the European Union amid disappointment over U.S. President Donald Trump’s failure get tax reform and infrastructure spending plans off the ground." Monday’s report from Germany is unlikely to mark a turning point for either the nation’s economy or the wider bloc, which has successfully navigated a series of political challenges while expansion accelerates. Meanwhile, European stocks slumped near session lows after rising 1% on Friday, the most since July 12, thanks to the drop in the Euro. The STOXX Europe 600 Price Index declined 0.3%, led by drop in IT, travel and real-estate shares, offsetting advances for ArcelorMittal, BHP Billiton Plc and Anglo American Plc after iron ore and steel prices climbed. Travel and leisure shares fall 0.6%, tech retreats 0.5%' Basic resources surged 1.1%. Germany’s DAX Index sank 0.2 percent. Earlier, Japan’s Topix index ended at a two-year high, boosted by earnings at Toyota Motor Corp., while benchmarks in Australia, South Korea and Hong Kong also gained. Toyota jumped 2 percent after it beat first-quarter profit estimates and raised its full-year forecast on Friday. Australia's ASX 200 (+0.9%) was led higher by commodity names after an early surge in Chinese Iron Ore futures, and as strong Australian Construction PMI (60.5 vs. Prey. 56.0) further contributed to the sector's positivity. Nikkei 225 (+0.5%) was boosted by JPY weakness. South Korea’s Kospi index gained 0.1 percent. In Hong Kong, the Hang Seng Index rose 0.4 percent. The MSCI Asia-Pacific Index added 0.5 percent to trade near to its highest since December 2007. The Japanese yen decreased 0.1 percent to 110.80 per dollar. Aside from a slight weakening in the Korean won, there was little financial market reaction to the news over the weekend that the U.N. Security Council unanimously imposed new sanctions on North Korea aimed at pressuring Pyongyang to end its nuclear program. Late on Sunday, Donald Trump tweeted that South Korean President Moon Jae-in agreed in a telephone call on Monday to apply maximum pressure and sanctions on North Korea, while China expressed hope that North and South Korea could resume contact soon. Elsewhere, Sir Simon Fraser has warned that Brexit negotiations have not begun well blaming the Government's failure so state clearly its position. The Telegraph reported that the UK is prepared to pay for a Brexit separation bill of as much as €40bln in which it is likely to offer 3 annual payments of €10bn, then finalise the total alongside trade discussions, according to sources. However, later source reports in The Guardian dismissed this as inaccurate speculation. West Texas Crude futures fell away from nine-week highs hit after the strong job data bolstered hopes for growing energy demand, and dropped below $49 a barrel as producers gathered in Abu Dhabi to discuss why some of them are falling behind in pledges to reduce output. Gold fell 0.1 percent to $1,257.80 an ounce, the weakest in a week. Copper declined less than 0.05 percent to $2.88 a pound. In rates, the yield on 10-year Treasuries advanced one basis point to 2.27%. Germany’s 10-year yield climbed one basis point to 0.48%. Britain’s 10-year yield declined less than one basis point to 1.174%. Among the key events this week, OPEC and non-member nations will meet in Abu Dhabi today to discuss supply cut compliance, which fell to 86% in July. It’s a week of industrial data in Europe. U.K. factory output for June is due Thursday. After Monday’s industrial production for Germany, Italy is on Wednesday and France on Friday. Among a number of Fed speakers this week, keep a keen ear out for comments by New York Fed boss Bill Dudley on Thursday. South African President Jacob Zuma faces a no-confidence vote. Dutch Prime Minister Mark Rutte resumes talks to form a coalition government on Wednesday. The Fed’s inflation puzzle means Friday’s CPI data will get close attention. Economists estimate that headline picked up in July to 1.8% from 1.6%, while core stayed at 1.7%. Argentina, Mexico, New Zealand, Peru, the Philippines, Serbia and Zambia set monetary policy. Bulletin Headline Summary Most major currencies nursed some of their post-NFP losses against the greenback, in which EUR/USD attempted to reclaim 1.1800 Brexit Back In Focus With Contradicting Reports Looking ahead, highlights include Fed's Bullard and Kashkari Global Market Snapshot S&P 500 futures up 0.1% to 2,474 STOXX Europe 600 down 0.1% to 382.15 MSCI Asia up 0.5% to 161.18 MSCI Asia ex-Japan up 0.5% to 530.95 Nikkei up 0.5% to 20,055.89 Topix up 0.5% to 1,639.27 Hang Seng Index up 0.5% to 27,690.36 Shanghai Composite up 0.5% to 3,279.46 Sensex down 0.06% to 32,305.24 Australia S&P/ASX 200 up 0.9% to 5,773.56 Kospi up 0.1% to 2,398.75 German 10Y yield rose 0.6 bps to 0.474% Euro up 0.3% to 1.1803 per US$ Italian 10Y yield rose 3.3 bps to 1.73% Spanish 10Y yield fell 0.5 bps to 1.478% Brent Futures down 0.7% to $52.05/bbl Gold spot down 0.08% to $1,257.89 U.S. Dollar Index down 0.2% to 93.37 Top Overnight News North Korea condemned the latest round of United Nations sanctions and reiterated that it wouldn’t negotiate its nuclear deterrence until the U.S. ceases “hostile” policies Theresa May’s office dismissed as speculation a report that the U.K. is prepared to pay a 40 billion-euro ($47 billion) bill to leave the European Union, while leading Brexit supporters pushed back against paying anything at all German industrial production unexpectedly slipped in June as manufacturing and construction caused a temporary blip in the growth spurt of Europe’s largest economy New Chief of Staff Kelly Moves Quickly to Tame Trump’s Tweets Senate Chairman Demanding Answers Ramps Up Trump Russia Probe United Technologies Is Said to Weigh Rockwell Collins Deal Sprint Is Said to Resume Preliminary Talks on T- Mobile Merger BlackRock Real Assets Acquires Magacela Solar Project Bond Berkshire Second Quarter Operating EPS Misses Lowest Estimate Berkshire Filing Shows Further Reduction in Buffett’s IBM Stake Uber Engineer Told Kalanick of Alibi for Downloaded Files Boeing, U.S. Have Deal for Air Force One Planes Russia Abandoned Eros Said in Talks to Sell Content Library to Apple for $1B: ET SoftBank Talks Were Said to Value Uber at $45b: The Information JPMorgan to Announce Warsaw Office Investment in Sept.: Puls Asian equity markets traded mostly higher following Friday's gains on Wall Street and as the region took its first opportunity to react to the better than expected NFP release. ASX 200 (+1.0%) was led higher by commodity names after an early surge in Chinese Iron Ore futures, and as strong Australian Construction PMI (60.5 vs. Prey. 56.0) further contributed to the sector's positivity. Nikkei 225 (+0.6%) was boosted by JPY weakness, Shanghai Comp (+0.2%) was the underperformer despite a substantial liquidity injection by the PBoC, as this still amounted to a daily net outflow of CNY 60bn after expiring prior operations were accounted for. Finally, 10yr JGBs were flat with demand dampened by the upbeat tone in the region and a lack of BoJ Rinban announcement. Shanghai Stock Exchange is to increase scrutiny of M&A, transfer of control deals and other corporate actions that could lead to financial risk in the market. PBoC injected CNY 130b1n in 7-day reverse repos and CNY 120bln in 14-day reverse repos. PBoC set CNY mid-point at 6.7228 (Prey. 6.7132). Chinese FX Reserves (Monthly) (Jul) 3.081T vs. Exp. 3.069T (Prey. 3.057T) China Q2 prelim current account USD 52.9bln vs. Prev. USD 18.4bln Top Asian News Correction May Loom for India Bank Stocks, Hedge Fund Warns China’s Foreign Reserves Rise a Sixth Month on Yuan Strength As Results Loom, Noble Group Won’t Reply to Latest Iceberg Barbs North Korea Condemns Latest UN Nuclear Sanctions, Vows Response SoftBank Profit Tops Estimates Amid Shift Into Deals, Investing European bourses trade rangebound following Friday's NFP volatility, and do maintain their highs. European bourses trade mixed, however marginally so, with Stoxx 600 sector seeing any movement greater than 1%. A large position liquidation in the German bund sparked some morning volatility, in otherwise quiet conditions. The future contract came off session highs, however, did manage to find support at the 163.00 handle. Top European News London Home Rents Fall Again After Almost Decade of Growth Halts U.K. House-Price Growth Slows to Weakest Pace in Four Years U.K. Economy Takes a Hit as Consumer Spending Slumps Further German Industrial Output Unexpectedly Falls First Time This Year Euro Climbs to Fresh Day High as Demand on Crosses Supports Paris Aims to Overtake Frankfurt in Race for Brexit Bank Jobs Taking a Long Shot on Cancer, AstraZeneca Defies the Odds Linde Forms Holding Company for Merger With Praxair: Welt In currencies, the EUR saw some early buying pressure this morning, coinciding with the Bund liquidation, as EUR pairs popped through overnight levels. No fundamental factors sparked the movement, with EUR/CHF seeing the main bullish pressure, yet resistance was found at 1.15 and we now trade at largely pre-announced levels. GBP was unmoved following contradicting reports in UK press over reports on Brexit costs and remains comfortably above 1.30. The Telegraph noted that the UK is prepared to pay EUR 40b1n for Brexit divorce bill, however source reports in the Guardian dismissed this as inaccurate speculation. In commodities, copper prices traded choppy with initial upside seen as Dalian Iron Ore and Rebar futures surged at the open of China metals trade, which was due to reduced stockpiles and firm demand. However, copper then failed to hold onto the gains and retreated amid a cautious risk tone in China. WTI futures failed to test the USD 50.00/bbl level and ran into some resistance around USD 49.60 on Friday, following the latest Baker Hughes Rig Count. Oil does continue to trade in this August; 48.50 — 50.00 range, as we are set to see an OPEC compliance meeting this week. Global demand has seemingly picked up of late however, with China now overtaking the United States as the world's largest importer of crude importing an average 8.55m1n BPD in the first half of 2017, above the 8.12mln BPD. WTI has been softer this morning, down 1.20% as we have broken through 49.00/bbl. Libya's Sharara oil field (largest in the country), is said to face stoppage due to protests, according to press reports. Looking at the day ahead, today starts with Germany’s industrial production figures for June in early morning, followed by UK’s July Halifax house price index and then US’s consumer credit stats for July. Also today we have speeches from the Fed’s Bullard and the Fed’s Kashkari, followed by the OPEC/Non-OPEC joint technical committee meeting in Abu Dhabi. US Event Calendar 3pm: Consumer Credit, est. $15.3b, prior $18.4b 10:45am: Fed’s Bullard Speaks on U.S. Economy in Nashville, TN 1:25pm: Fed’s Kashkari Speaks in Bloomington, MN DB's Jim Reid concludes the overnight wrap In theory we should now be at the start of the real summer lull that will likely last until the Jackson Hole build-up. The event starts on August 24th so we should now get two weeks of calm. If that statement is not enough to encourage a violent bout of volatility then I don't know what will! I'm hoping I'll be still here to report on the lull as my wife was 33 weeks pregnant yesterday and the consultant last week advised delivery at around 36 weeks. However she has some doubts as to whether we'll get that far though and the average pregnancy length for identical twins is 35 weeks and 2 days. So I'm on standby to panic at any moment. I was desperately hoping we could hold on into September (I say we but....) so they would have an extra year before they start school. All the evidence is that autumn children do better at school and sports than summer children. However I now accept that the mother and twin's health is more important than me being proud that my boys are the best at sport in their year by virtue of being the oldest and biggest!! Back to the summer lull. The week post payrolls is normally quiet anyway but this week could be extra so. There's only really one obvious observable candidate to create a little noise this week and that's the US CPI numbers on Friday (PPI on Thursday). Friday's slightly stronger than expected payroll number and hint of stronger wages (more detail below) did have an impact on markets as we'll see below. Inflation data is probably where the market is most sensitive to a surprise at the moment. Our economists expect gasoline prices to cause headline CPI (+0.1% vs. Unch,) to round down, while core CPI inflation (+0.2% vs. +0.1%) should finally snap its streak of four consecutive monthly misses which could be important. Our economists also remind us that as recent Fed statements have emphasized, policymakers will be monitoring near-term inflation trends closely. Hence, an in line print would provide tentative evidence that the recent downshift in core inflation may be behind us. What we also might hear about this week is the 10-year anniversary of BNP Paribas announcing that they were closing down three hedge funds specialising in US mortgages. This happened on August 9th 2007 and was the catalyst for the inter-bank market to fully shut down as no-one trusted anyone anymore which in turn set off a course of events that led to the bank run on Northern Rock just over a month later and the other nasty events culminating in the Lehman default 12 months down the line. It seems like only yesterday. Also in quieter times its fascinating to see that President Macron's approval rating has dipped sharply and as you can see from the graph in today's PDF, its now not much higher than President Trump's in the US. Our DB Europe economist Marc de Muizon published a note on Friday analysing the implications of Macron’s recent drop in popularity. He notes that while it is common for freshly elected presidents to see their popularity fall post-election, Macron's drop is still relatively large and early by historical standards. With the growth momentum in the euro-area and in France picking up, and given his electoral success, Macron now needs to avoid further controversies to ensure his reform agenda can be pushed through to the end. There could be some wider market interest in this story after the summer ends. Onto markets and the week is generally starting on the front foot in Asia with the Nikkei +0.6%, the Hang Seng +0.4% and Kospi +0.4% all higher as we type. The Shanghai Comp is actually slightly lower (-0.2%). There's not been a lot of fresh news flow and sentiment is following the lead from Friday. Indeed Friday was a strong day for global equity markets (especially in Europe) that capped off an otherwise flat week. Over in the US the S&P 500 ticked up +0.2% following the better than expected payrolls data, with financials leading the way with gains of +0.7% on the day. The S&P 500 has now seen 12 successive closes of less than 0.3% in either direction which is a record with daily data going back to 1927. So quite remarkable really. The Dow (+0.3%) also continued to trade to new highs (+1.2% on the week but creeping up fractions every day!). European markets saw even stronger performance on Friday as the STOXX 600 rallied +1% as every sector ended the day in positive territory. The STOXX Banks index was also up +1.2% on the day. Regional indices also posted strong gains, with the DAX (+1.2%), CAC (+1.4%), FTSE (+0.5%) and FTSE MIB (+0.7%) all up on the day. Over in government bond markets the strong payrolls number led to US treasuries selling off across the curve (2Y +1bps; 10Y +4bps). Over in Europe Bunds yields also ticked up at all maturities beyond the 5Y point (10Y +2bps). Gilt yields rose across all maturities (2Y +3bps; 10Y +3bps) to retrace part of the rally that followed the BoE meeting on Thursday, but 10Y Gilt yields were still lower by -4bps on the week. Elsewhere OATs (10Y +3bps) and BTPs (10Y +3bps) were higher across maturities. Turning to FX markets, the US dollar index (+0.8%) rallied following the strong employment report to end the week higher by +0.4%. On the other side of these moves, EUR (-0.8%) and GBP (-0.8%) both posted losses to end the week roughly flat and down -0.8% respectively. Over in commodity markets the energy sector saw oil pick up gains of about +1.0% on Friday, although it ended the week lower by -0.3% due to bigger losses earlier in the week. Precious Metals were lower on Friday with Gold and Silver down -0.7% and -2.0% respectively, while the industrial metals complex saw copper flat while aluminum dropped by -0.5%. Agricultural commodities were fairly mixed on the day as Cotton (+0.4%) and Corn (+0.8%) while other segments were flat (wheat, soybeans, coffee) to lower (sugar -1.2%). Friday was a fairly quiet data day over in Europe and most of the equity rally came after payrolls. The only data points of note were German factory orders which held steady at +1.0% (vs. +0.5% expected) followed by Italian retail sales that ticked up by +0.6% in June (vs. +0.1% mom expected) following no growth the month before. However the key market moving data was over in the US with the July employment report. Payrolls beat expectations at 209k (vs. 180k expected) while June’s number was revised up to 231k (from 222k). The unemployment rate ticked down one-tenth as expected to 4.3%, while monthly average hourly earnings also came in line with expectations at +0.3% mom but the YoY growth rate was a tenth higher than expected at 2.5%. Finally we also got US trade balance data for June where the trade deficit narrowed more than expected to - $43.6b (vs. -$44.5b expected; -$46.5b previous). To the week ahead now. Today starts with Germany’s industrial production figures for June in early morning, followed by UK’s July Halifax house price index and then US’s consumer credit stats for July. Onto Tuesday, Japan’s balance of payments and trade balance figures for June will be out in early morning. Then Germany’s June trade balance, current account, export and import stats are due. France will also report its June trade balance and current account figures. Over in the US, there is the NFIB small business optimism index for July. Turning to Wednesday, China’s CPI and PPI for July will be out in early morning. Later on, Italy’s June industrial production figures and Bank of France’s business sentiment indicator are also due. Over in the US, there is the 2Q nonfarm productivity and unit labour costs data, June wholesale inventories as well as the MBA mortgage applications. For Thursday, the June industrial production and manufacturing production figures for UK and France will be out. Further, June trade balance stats for UK and Italy are also due. Over in the US, we have the July PPI data, the monthly budget statement as well as the initial jobless claims and continuing claims figures. On Friday, the final CPI figures for Germany, France and Italy will be released. Over in the US, CPI stats for July are also due. Onto other events, today starts with speeches from the Fed’s Bullard and the Fed’s Kashkari, followed by the OPEC/Non-OPEC joint technical committee meeting in Abu Dhabi. Then on Thursday, the Fed’s Dudley will speak. Onto Friday, the Fed’s Kaplan and Fed’s Kashkari will also speak. Finally we'll still have earnings season continuing on both sides of the Atlantic but we're now past the peak.
Джон Мейнард Кейнс написал однажды: “Практичные люди, считающие себя совершенно не подверженными никакому интеллектуальному влиянию, обычно оказываются рабами какого-нибудь умершего экономиста.”Более верных слов и придумать сложно, однако, если вы захотите освежить цитату Кейнса применительно к сегодняшним условиям, вам следует начать ее с “практичных женщин,” чтобы учесть в этом высказывании Председателя Федрезерва Джанет Йеллен. “Умершим экономистом” в таком случае будет значиться изобретатель Кривой Филлипса Уильям Филлипс, отошедший в мир иной в 1975 году.Если описать в простых терминах, то Кривая Филлипса – это модель, основанная на одном уравнении, которая описывает обратное отношение между инфляцией и уровнем безработицы. Если безработица уменьшается, то инфляция растет, и наоборот. Это уравнение было впервые явлено миру в академическом журнале в 1958 году, и оно рассматривалось как полезный инструмент в монетарной политике в 1960-х и начале 1970-х годов.Но к середине 1970-х Кривая Филлипса перестала работать. В США наблюдалась большая безработица и высокая инфляция в одно и то же время. Иногда такую ситуацию называют “стагфляцией.” Милтон Фридман высказал идею, что Кривая Филлипса может работать только на непродолжительных промежутках времени, потому что в долгосрочной перспективе инфляция всегда определяется монетарным предложением.Экономисты начали видоизменять оригинальное уравнение, добавляя в него различные факторы, которые имели не эмпирическую природу, а были сами результатами других моделей. В результате вместо уравнения получилась путаница моделей, основанных на моделях, которые не имели ни малейшего отношения к действительности. К началу 1980-х Кривая Филлипса никем не воспринималась всерьез, даже академиками, и она оказалась похороненной раз и навсегда. RIP.Но подобно зомби из сериала “Ходячие мертвецы” Кривая Филлипса вновь вернулась!И человек, который сделал главную работу по оживлению этого мертвеца, оказался никем иным, как Джанет Йеллен, которая является либеральным экономистом, специализирующимся на экономике труда, и которая по совпадению занимает теперь пост Председателя Федрезерва.Уровень безработицы в США сейчас равен 4,3%, и это самое низкое значение с начала 2000 годов. Йеллен полагает, что в таких условиях должна возникнуть инфляция, так как недостаточное предложение на рынке труда приведет к росту зарплат, в результате чего экономика приблизится к пределам реального роста. Йеллен также согласна с Фридманом в том, что монетарная политика работает с временным лагом.Если вы верите в то, что вскоре случится инфляция, и в то, что монетарная политика работает с лагом, то вам следует повышать процентные ставки прямо сейчас, чтобы сохранить контроль над ростом цен. Именно это Йеллен и ее коллеги делают в настоящее время.Однако давайте вернемся в реальный мир, в котором все указывает не на приближение инфляции, а на приближение дефляции. Нефтяные цены падают, среднесрочные процентные ставки снижаются, участие в рабочей силе сокращается, демография располагает к сбережениям, а не к тратам, а логистика и цепочки поставок таких гигантов, как Wal-Mart и Amazon, душат рост цен, где бы он не возникал.Даже традиционные сектора, в которых ранее наблюдалась высокая инфляция, такие как высшее образование и здравоохранение, и те охлаждаются в последнее время.Йеллен и небольшая группа руководителей Феда, включая Билла Дадли и Стэна Фишера, продолжают всем видом показывать, что намерены и дальше повышать ставки в этом году. Оппозиция, выступающая за то, чтобы в этом году ставки остались на текущем уровне, растет, и в рядах этой оппозиции числятся Нил Кашкари, Лейл Брейнард и Чарльз Эванс.Их интеллектуальная схватка вскоре достигнет своего апогея.Во-первых, облигации растут в цене, потому что рынки ожидают рецессию или замедление экономики в результате неоправданного ужесточения политики Федрезервом. И тут я вспоминаю Билла Гросса…Практически каждый инвестор слышал о Билле Гроссе. В течение нескольких десятилетий он возглавлял фонд PIMCO, являющийся самым большим облигационным фондом. Он специализировался на долге американского казначейства…Фонд PIMCO всегда был “тяжеловесом” на облигационном рынке. В 1980-х и в 1990-х годах я работал в качестве главного кредитного специалиста в одном из крупнейших первичных дилеров, которые напрямую заключают сделки с торговым деском Федерального Резерва, осуществляющим операции на открытом рынке.Фонд PIMCO имел выделенные линии и выделенную команду специалистов в нашей фирме. Когда этот фонд продавал или покупал облигации, рынок приходил в движение. Каждый первичный дилер хотел получить заявку от этого фонда.Гросс стал известен благодаря своему умению показывать доходность, значительно превышающую рост облигационных индексов. Его успех заключался в правильно выбранном тайминге. Если вы продаете бонды накануне роста процентных ставок, и покупаете их, когда Федрезерв готовится понизить ставки, то вы можете получить не только купон и полный возврат затраченных вами средств в момент погашения этих облигаций, но и большие прибыли от изменения цен этих долговых инструментов.Теперь Гросс выступает с одним из самых своих серьезных предупреждений. Он говорит, что уровень рыночного риска теперь выше, чем когда-либо с момента, предваряющего панику 2008 года. Гросс говорит, что все может повториться вновь, и скоро.Никто не умеет читать рынок лучше, чем Билл Гросс. А значит, когда он выступает с предупреждением, инвесторам стоит обратить на это внимание.Рынок акций дает противоположный сигнал. Акции растут, потому что рынки интерпретируют повышение ставок Федрезервом как сигнал о том, что экономика набирает силу.Оба эти рынка не могут быть правы одновременно. Либо акциям, либо облигациям предстоит упасть в недалеком будущем.Золото наблюдает и ждет, то снижаясь, испугавшись дефляции, то устремляясь вверх, решив, что Федрезерв будет вынужден развернуть свой курс, как только экономика заметно замедлится.Мои модели показывают, что облигации, Билл Гросс и золото правильно оценивают ситуацию, а акции ждет обвал.Коррекция на рынке акций не случится прямо сейчас, потому что Федрезерв все еще находится в режиме заговаривания ставок вверх и полагает, что дизинфляция – это временное явление.Но даже Джанет Йеллен не может игнорировать реальность слишком долго. Прогнозы ФРБ Атланты по росту ВВП во втором квартале снизились с майских 4,3% до 3,4% по состоянию на 2 июня и до 2,9% по состоянию на 15 июня.Сегодня этот банк выпустил свой последний прогноз по росту ВВП, который остался неизменным с 15 июня, то есть, по мнению ФРБ Атланты, экономика Америки вырастет во втором квартале на 2,9% из расчета за год.Но есть нечто, что замедляет рост экономики, и это нечто – повышение ставок Федрезервом.К августу даже сам Федрезерв получит послание. Но может так статься, что к тому моменту время исправлять ситуацию будет упущено. Если рост экономики США во втором квартале составит 2,5%, то в совокупности со значением этого показателя за первый квартал на уровне 1,2% прирост ВВП Америки во первом полугодии будет равен 1,85% из расчета за год.И это даже меньше роста ВВП в 2%, который считается слабым в текущем цикле восстановления, стартовавшего в июне 2009 года. В таких условиях инфляция не рождается.Необдуманная политика Феда не должна никого удивлять.Федеральный Резерв делал почти все неправильно по крайней мере в последние 20 лет, а то и дольше. Федрезерв организовал бэйл-аут Long-Term Capital Management в 1998 году, хотя по делу этому фонду следовало бы дать обанкротиться, чтобы Уолл Стрит услышал предупреждение.Вместо этого мы увидели, что пузыри стали еще больше, в результате чего случился катастрофический коллапс 2008 года. Гринспен удерживал низкие ставки слишком долго с 2002 по 2006 год, и все это привело к надуванию пузыря в секторе недвижимости и последующему его коллапсу.Бернанке проводил “эксперимент” (как он сам выражался) с количественным смягчением с 2008 по 2013 год, и этот эксперимент не привел к ожидаемому росту экономики, но он надул новые пузыри в акциях и в облигациях развивающихся рынков.И теперь Йеллен повышает ставки в условиях слабеющей экономики, и ее действия, вероятно, приведут к рецессии, как это произошло в 1937 году, когда Федрезерв также решил поднять ставки на фоне низких темпов экономического роста.Почему Федрезерв совершил это череду ошибок?Ответ заключается в том, что он использует устаревшие и дефективные модели, такие как Кривая Филлипса, и так называемую политику “эффекта богатства.” Ничего из этого не ново; я говорю об этом годами в моих книгах, интервью и выступлениях.Новизна заключается в том, что теперь даже мейнстрим-медиа начинают замечать, что что-то идет не так. Руководители Федрезерва были представлены как шарлатаны, как профессора из Страны Оз.Последняя ошибка Федрезерва приведет к тому, что еще до сентября его политика смягчится в форме сигналов рынкам о том, что повышений ставок до конца года не предвидится.Пришла пора покупать казначейские ноты и золото, а также выходить из акций в кэш. Возможно, Федрезерв последним узнает о наступлении дефляции, но, когда он узнает об этом, его реакция может оказаться немедленной, и в этом случае рынки могут пережить потрясение.Именно это и происходит, когда зомби вырываются на свободу.Опубликовано 26.06.2017 г.Источник: Why the Fed Will Fail Once Again
Samuel Rines Politics, Keeping rates too low for too long could lead to disaster. In his dissent against the Federal Reserve’s latest decision to raise rates, Minneapolis Fed President Neel Kashkari warned that the Fed was at risk of making a 1970’s style mistake—only in reverse. Whereas the Fed of forty years ago was too slow to raise rates in response to high inflation, Kashkari’s idea is that, with both inflation expectations and realized inflation now declining, today’s Fed should rethink (i.e. lower) the trajectory of its policy tightening. This is a sort of “anti-Volcker” moment for the Fed dissenters. For the past several years, the Fed has serially missed its 2 percent inflation target, and (the argument goes) the Fed needs to be truly committed to its target, or it will lose credibility. Already, the Fed has to explain the deviation. Chair Janet Yellen’s statement expressed confidence in the eventuality of hitting 2 percent before stating that the Fed would look through the current weak inflation figures. While somewhat unexpected in its directness, Yellen’s statement is less than shocking. This Fed frequently sees oil as having only a transitory impact on inflation and takes care to avoid placing too much credence in subsequent readings. The culprit this time around happened to be wireless phone plans, but the pivot to unlimited data plans is realistically a one-time happening. In other words, choosing to call sharp, one-time movements in prices transitory is far from abnormal. Read full article
In the aftermath of the shale oil bust that sent the US economy to stall speed in 2015, growth has rebounded, but only to a sort of 2%ish level. Continued low inflation insures further low nominal GDP growth aka secular stagnation. But so far, this stagnation has not made the economy more susceptible to recession. Some brief thoughts below Here’s […] Related posts: The Fed’s financial stability concerns, auto subprime edition Is the new rout in oil getting worrying? The oil price cliff dive will end the prospect of double-barrelled tightening
Москва, 28 июня. /МФД-ИнфоЦентр, MFD.RU/00:30 мск: Выступление президента ФРБ Миннеаполиса Нила Кашкари; 09:00 мск: Цены на импорт в Германии за май; 09:00 мск: Индикатор потребления в Швейцарии от UBS за май; 09:00 мск: Индекс цен на дома в Великобритании за июнь; 11:00 мск: Денежная масса М3 в евр...
Евро продолжает расти в ходе азиатской сессии, и достигнув нового 10-месячного максимума против доллара США. Рост евро начался после выступления главы ЕЦБ Драги во вторник, в ходе которого он намекнул на возможное завершение программы покупок облигаций ЕЦБ. Драги сообщил, что стимулирование будет постепенно сокращаться по мере дальнейшего улучшения ситуации в экономике еврозоны. Аналитики считают, что в сентябре или октябре этого года ЕЦБ объявит, что начнет сворачивать программу покупки облигаций уже в начале следующего года. Кроме того, Драги заявил, что ЕЦБ может проигнорировать временную слабость инфляции. "Хотя определенные факторы оказывают влияние на инфляцию, в данный момент они в основном являются временными, и ЦБ может их не учитывать", - сообщил Драги, и добавил, что необходимо продолжать аккомодационную политику, чтобы динамика инфляции стала устойчивой и самоподдерживающейся. Участники рынка продолжают оценивать высказывания главы ФРС Йеллен и других представителей центробанка США в надежде получить подсказки относительно перспектив дальнейшего ужесточения денежно-кредитной политики в этом году. Вчера в своей речи Йеллен так и не затронула тему денежно-кредитной политики. А вот президент ФРБ Филадельфии Харкер заявил, что поддерживает дальнейшее повышение ставок, и добавил, что недавнее замедление инфляции, скорее всего, является временным. Президент Федерального резервного банка Миннеаполиса Нил Кашкари, выступая на мероприятии в мэрии Мичигана заявил, что не стоит спешить с повышением ставок ФРС прямо сейчас и что он пока не видит убедительных аргументов в пользу повышения ставок. Согласно котировкам фьючерсов на ставку ФРС, отслеживаемым CME Group, инвесторы оценивают вероятность очередного повышения ставок ФРС в этом году в 54,4% против 50,0% в пятницу и 46,8% неделей ранее (20 июня). Австралийский доллар значительно вырос на фоне повсеместного ослабления американской валюты, а также на фоне роста цен на железную руду. В отсутствие важных экономических данных из Австралии на этой неделе, на курс австралийской валюты в основном будут влиять внешние факторы. Информационно-аналитический отдел TeleTradeИсточник: FxTeam
Президент Федерального резервного банка Миннеаполиса Нил Кашкари, выступая на мероприятии в мэрии Мичигана заявил, что не стоит спешить с повышением ставок ФРС прямо сейчас и что он пока не видит убедительных аргументов в пользу повышения ставок. Г-н Кашкари также отметил отсутствие признаков того, что очередной кризис в стиле 2008 года может вновь наступить. Информационно-аналитический отдел TeleTradeИсточник: FxTeam
В среду, 28 июня, ожидается публикация небольшого количества важной для валютного рынка статистики. В 09:00 МСК появится динамика импортных цен Германии за май, на которую советуем обратить внимание любителям евро. Согласно прогнозам, показатель снизился на 0,6% м/м, но увеличился н 4,6% г/г. В 11:00 МСК станет известен индекс экономических ожиданий инвесторов ZEW Швейцарии за июнь, который составил в минувшем месяце 30,8 пункта. Наконец, в 17:30 МСК выйдут недельные запасы нефти, рассчитываемые EIA. Ожидается, что показатель снизился на 2,298 млн баррелей после сокращения на 2,451 млн баррелей неделей ранее. Кроме того, в 00:30 МСК выступит глава ФРБ Миннеаполиса Нил Кашкари, в 10:30 МСК состоится выступление члена FOMC Джона Уильямса, а на 16:30 МСК запланированы выступления главы ЕЦБ Марио Драги, главы Банка Англии Марка Карни, главы Банка Японии Харухико Куроды и главы Банка Канады С.
Authored by James Rickards via The Daily Reckoning, John Maynard Keynes once wrote, “Practical men who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.” Truer words were never spoken, although if you updated Keynes today, the quote would begin with “practical women” to take account of Fed Chair Janet Yellen. The “defunct economist” in question would be William Phillips, inventor of the Phillips curve, who died in 1975. In its simplest form, the Phillips curve is a single-equation model that describes an inverse relationship between inflation and unemployment. As unemployment declines, inflation goes up, and vice versa. The equation was put forward in an academic paper in 1958 and was considered a useful guide to policy in the 1960s and early 1970s. By the mid-1970s the Phillips curve broke down. The U.S. had high unemployment and high inflation at the same time, something called “stagflation.” Milton Friedman advanced the idea that the Phillips curve could only be valid in the short run because inflation in the long run is always determined by money supply. Economists began to tweak the original equation to add factors — some of which were not empirical at all but model-based. It became a mess of models based on models, none of which bore any particular relationship to reality. By the early 1980s, the Phillips curve was no longer taken seriously even by academics and seemed buried once and for all. RIP. But like a zombie from The Walking Dead, the Phillips curve is baaaack! And the person who has done the most to revive it is none other than Janet Yellen, the 70-year-old liberal labor economist who also happens to be chair of the Federal Reserve. Unemployment in the U.S. today is 4.3%, the lowest rate since the early 2000s. Yellen assumes this must result in inflation as scarce labor demands a pay raise and the economy pushes up against the limits of real growth. Yellen also agrees with Friedman that monetary policy works with a lag. If you believe that inflation is coming soon and that policy works with a lag, you better raise interest rates now to keep the inflation from getting out of control. That’s exactly what Yellen and her colleagues have been doing. Meanwhile, back in the real world, all signs point not to inflation but to deflation. Oil prices are declining, intermediate-term interest rates are falling, labor force participation is falling, demographics favor saving over spending and logistics and supply-chain giants like Wal-Mart and Amazon are relentlessly squashing price increases wherever they appear. Even traditional high-price sectors like college tuition and health care have been cooling off lately. Yellen and a small group of Fed insiders, including Bill Dudley and Stan Fischer, are keeping up the drumbeat for more rate hikes later this year. Opposition to more rate hikes among Fed officials is growing, including from Neel Kashkari, Lael Brainard and Charles Evans. This intellectual tug of war is coming to a head. First, bonds are rallying because the bond market expects a recession or slowdown due to unnecessary tightening by the Fed. Which brings me to Bill Gross… Practically every investor has heard of Bill Gross. For decades he was the head of PIMCO and ran the world’s largest bond fund. His specialty was U.S. Treasury debt.. PIMCO was always a “bigfoot” in the bond marketplace. In the 1980s and 1990s, I was chief credit officer at a major U.S. Treasury bond dealer, one of the so-called “primary dealers” who get to trade directly with the Federal Reserve open market operations trading desk. PIMCO had dedicated lines and a dedicated sales team at our firm. When they called to buy or sell, it would move markets. Every primary dealer wanted to be the first firm to get the call. Gross is famous for outperforming major bond indices by a wide margin. The way to do that is market timing. If you sell bonds just ahead of a rising rate environment, and buy them back when the Fed is ready to reverse course you not only capture most of the coupon and par value at maturity, you can book huge capital gains besides. Now Gross has issued one of his most stark warnings yet. He says that market risk levels today are higher than any time since just before the 2008 panic. We all know what happened then. Gross says it could happen again, and soon. No one reads the market better than Bill Gross. So, when he issues a warning, investors are wise to pay attention. The stock market is giving a different signal. Stocks are rallying because markets interpret Fed rate hikes as a signal that the economy is getting stronger. Both markets cannot be right. Either stocks or bonds will crash in the weeks ahead. Gold is watching and waiting, moving down on deflation fears and then up again on the view that the Fed will have to reverse course once the economy cools down. My models show that bonds, Bill Gross and gold have it right and that stocks are heading for a fall. The stock market correction won’t come right away, because the Fed is still in a mode to talk up rate hikes and strong growth and to dismiss disinflation as “transitory.” Yet even Janet Yellen can’t ignore reality forever. The Atlanta Fed GDP growth forecast for the second quarter has gone from 4.3% on May 1, to 3.4% on June 2, to 2.9% on June 15. Today it released its latest growth forecast, which remains unchanged from its June 15 reading — 2.9%. Something is slowing down the economy, and that something is Fed rate hikes. By August, even the Fed will get the message. But by then it may be too late. If Q2 growth comes in at 2.5% combined with Q1 growth of 1.2%, that would put 2017 first-half growth at about 1.85%. That’s even weaker than the historically weak 2.0% growth of the current expansion since June 2009. This is not the stuff of which inflation is made. The Fed’s bungling should come as no surprise. The Federal Reserve has done almost nothing right for at least the past twenty years, if not longer. The Fed organized a bailout of Long-Term Capital Management in 1998, which arguably should have been allowed to fail (with a Lehman failure right behind) as a cautionary tale for Wall Street. Instead the bubbles got bigger, leading to a more catastrophic collapse in 2008. Greenspan kept rates too low for too long from 2002-2006, which led to the housing bubble and collapse. Bernanke conducted an “experiment” (his word) in quantitative easing from 2008-2013, which did not produce expected growth, but did produce new asset bubbles in stocks and emerging markets debt. Yellen is now raising rates in a weak economy, which should produce the same recessionary reaction as 1937, the last time the Fed raised into weakness. Why this trail of blunders? The answer is that the Fed is using obsolete and defective models such as the Phillips Curve and the so-called “wealth effect” to guide policy. None of this is new; I’ve been saying it for years in books, interviews and speeches. What is new is that even the mainstream media is beginning to see things the same way. Fed leaders have been exposed as charlatans, like the Professor in the Wizard of Oz. The Fed’s latest failure will cause policy to shift to ease before September in the form of forward guidance on no further rate hikes this year. Just one more failure in a long list. It’s time to load up on Treasury notes, gold and cash and lighten up on stocks. The Fed may be the last to learn about deflation, but when they do, the policy response could be instantaneous and markets could suffer whiplash. That’s what happens when zombies are on the loose.
В среду, 28 июня, ожидается публикация небольшого количества важной для валютного рынка статистики. В 09:00 МСК появится динамика импортных цен Германии за май, на которую советуем обратить внимание любителям евро. Согласно прогнозам, показатель снизился на 0,6% м/м, но увеличился н 4,6% г/г. В 11:00 МСК станет известен индекс экономических ожиданий инвесторов ZEW Швейцарии за июнь, который составил в минувшем месяце 30,8 пункта. Наконец, в 17:30 МСК выйдут недельные запасы нефти, рассчитываемые EIA. Ожидается, что показатель снизился на 2,298 млн баррелей после сокращения на 2,451 млн баррелей неделей ранее. Кроме того, в 00:30 МСК выступит глава ФРБ Миннеаполиса Нил Кашкари, в 10:30 МСК состоится выступление члена FOMC Джона Уильямса, а на 16:30 МСК запланированы выступления главы ЕЦБ Марио Драги, главы Банка Англии Марка Карни, главы Банка Японии Харухико Куроды и главы Банка Канады С.
Новым президентом Федерального резервного банка Миннеаполиса стал бывший топ-менеджер инвестбанка Goldman Sachs и фонда облигаций PIMCO Нил Кашкари.