После нескольких лет утверждений о том, что инфляционные ожидания стабильны и прочно заякорены, представители ФРС начинают осознавать небольшое, но тревожное смягчение в прогнозах потребителей, бизнеса и инвесторов по ценам, пишет Bloomberg.
После нескольких лет утверждений о том, что инфляционные ожидания стабильны и прочно заякорены, представители ФРС начинают осознавать небольшое, но тревожное смягчение в прогнозах потребителей, бизнеса и инвесторов по ценам, пишет Bloomberg.
Москва, 13 сентября - "Вести.Экономика". Бывший председатель Федеральной резервной системы (ФРС) США Алан Гринспен признал, что терпение иногда является лучшей политикой, чем превентивное изменение процентных ставок, потому что "будущее порой может быть слишком непрозрачным".
Бывший председатель Федеральной резервной системы (ФРС) США Алан Гринспен признал, что терпение иногда является лучшей политикой, чем превентивное изменение процентных ставок, потому что "будущее порой может быть слишком непрозрачным", пишет Bloomberg.
Бывший председатель Федеральной резервной системы (ФРС) США Алан Гринспен признал, что терпение иногда является лучшей политикой, чем превентивное изменение процентных ставок, потому что "будущее порой может быть слишком непрозрачным", пишет Bloomberg.
Time to buy high-momentum and high-beta ETFs as fears over North Korea and Hurricane Irma are slowly fading?
Форекс В фокусе внимания на прошлой неделе была сохраняющаяся напряженность на Дальнем Востоке, заседание ЕЦБ и ураганы в США. На Дальнем Востоке по-прежнему жарко. Обсуждая с главой японского правительства последнее испытание Пхеньяном водородной (если верить Пхеньяну) бомбы, Трамп заверил, что Вашингтон будет защищать себя и своих союзников, используя весь спектр дипломатических, традиционных и ядерных возможностей, которые находятся в распоряжении США. Глава Пентагона США Джеймс Мэттис заявил, угрозы Пхеньяна будут встречены массированным военным ответом. Слабо верится в то, что дело дойдет до пожара войны, но инвесторам становится страшновато. Защитные активы (золото, CHF, JPY) растут на фоне высокой напряженности. Геополитическая напряженность также удерживала EUR/USD от развития нисходящей коррекции до заседания ЕЦБ, так как евро в последнее время ведет себя как контрциклическая валюта. Предшествующая неделя, ознаменовавшаяся сливом «источников в ЕЦБ» относительно неопределенности перспектив сворачивания европейского QE, ранее прервало ралли EUR/USD, и от главы ЕЦБ Марио Драги ждали словесной интервенции после заседания в четверг на прошлой неделе. И не дождались. Выступление Драги не сообщило, по сути, ничего нового, не дало каких-то указаний на то, что ЕЦБ обеспокоен сильным евро, хотя было отмечено, что сильный евро оказывает давление на инфляцию и потому принимается во внимание ЕЦБ. Драги сообщил, что: ·процентные ставки будут находиться на нынешних уровнях в течение продолжительного периода; ·QE на 60 млрд евро в месяц продлится до декабря, а может и дольше, пока ЕЦБ не убедится в устойчивом восстановлении инфляции; ·следит за волатильностью евро, который является источником неопределенности; ·экономический рост пока не подтолкнул инфляцию к усилению, поэтому сохраняется нужда в существенном денежно-кредитном стимулировании; ·базовая инфляция немного выросла, но остается сдержанной; общая инфляция, вероятно, временно снизится ближе к концу года, базовая инфляция будет постепенно расти в среднесрочной перспективе; риски для перспектив представляются сбалансированными; ·ЕЦБ обсуждал различные сценарии для QE, но обсуждение было предварительным; ·большинство решений по QE будет принято в октябре; ·политика ЕЦБ не таргетирует валютный курс. После короткого периода волатильности, во время которого и быки, и медведи увидели в заявлении ЕЦБ то, что каждый хотел увидеть, и боролись за направление тренда, ралли EUR/USD возобновилось. Нейтральное, по сути, выступление спровоцировало продолжение торговли по тренду. Пара EUR/USD поставила новый локальный максимум выше прежнего, не дойдя немного до 1.21, но удержать его не смогла, и закрыла неделю ниже предыдущего. Настрой в паре, однако, остается бычьим, можно констатировать, что Драги имел возможность скорректировать тренд, но не стал ей пользоваться. Исходя из этого можно сделать предположение, что рынок начнет закладывать к октябрьскому заседанию ЕЦБ ожидания по сворачиванию QE, которые могут корректироваться в ту или иную сторону словесными интервенциями чиновников ЕЦБ и каких-либо иных заинтересованных в курсе лиц (например, глав финансовых ведомств крупных стран ЕС). Поскольку ралли EUR подпитывалось ожиданиями сворачивания QE, оно либо продолжится, если доллар и дальше останется жертвой геополитики и внутренних неурядиц США, либо перейдет в боковую консолидацию. В связи с этим не стоит ожидать значительной коррекции в EUR/USD на фоне той значительной перекупленности, которая наблюдается в паре в последние недели. К упомянутым выше внутренним неурядицам США на среднесрочную перспективу можно добавить ущерб, нанесенный стихией. Есть мнение, что он достаточно велик, чтобы заметно отразится на динамике ВВП и дать ФРС лишний повод занять мягкую позицию по вопросу дальнейшего ужесточения монетарной политики. Это мнение подогрел чиновник ФРС Уильям Дадли, заявивший, что ураганы затруднят понимание экономических данных (хотя восстановительные работы после ураганов обычно приводят к ускорению экономической активности в долгосрочной перспективе). Слабость доллара на прошлой неделе подпитывали также неблестящие в очередной раз данные с рынка труда, вышедшие ниже ожиданий индексы деловой активности и провальная статистика по заказам на товары длительного пользования за июль (финальное чтение). Новостной фон пока складывается так, что попытки роста доллара надо продавать во всех основных парах. USD/JPY может уйти в район 105, GBP/USD – продолжить рост в район 1.35.EUR/USD, вероятно, попробует в рамках недели достичь уровня 1.217. Но не стоит забывать о возможности чиновников ЕЦБ влиять на курс, и о том, что при текущей перепроданности доллара это может спровоцировать резкие движения. Надо отметить, что несмотря на то, что евро повело себя сильнее, чем мы рассчитывали, наши рекомендации продажи евро в парах EUR/GBP и EUR/JPY по итогам недели оправдали себя. Однако, учитывая эффект от выступления Драги, мы ожидаем торможения нисходящего движения в этих парах. На фоне опасения последствий ураганов, обрушившихся на США, нефть в пятницу упала, хотя до этого демонстрировала попытки роста. Это падение помогло WTI остаться в рамках волатильного нисходящего тренда, стартовавшего еще в конце февраля. Среднесрочная техническая картина подразумевает сейчас среднесрочный риск ухода цены вниз в район $40 за баррель. В пользу развития такого сценария может сыграть как последствия стихии, так и сохраняющаяся невысокой дисциплина ОПЕК+: в частности, Азербайджан, Казахстан, Мексика и Оман выполняют соглашение не более чем на 70%, что вызывает обеспокоенность России. Резкое снижение нефти в конце недели оборвало рост австралийской и канадской валюты. Канадцу ранее помог укрепляться ЦБ, неожиданно для рынка поднявший ставку. В последний день недели AUD/USD сформировал свечу в форме шипа, которая может стать частью разворотной модели, USD/CAD закрылся в точности на 50% от ралли с низов 2012-го до верхов 2016-го. По совокупности динамики сырьевых рынков и геополитических рисков, а также руководствуясь технической картиной, мы полагаем, что сырьевые валюты не смогут продолжать восходящее движение. Это касается и рубля, который отскочил в пятницу от района 57 за доллар и, вероятно, направляется обратно в район 60. Доллар/рубль По итогам недели наши цели в диапазоне 57.0 – 57.2 были достигнуты, в моменте был пробит и 57 за доллар, и, как мы и предполагали, укрепление рубля на этом остановилось. Как следует из последних данных американской Комиссии по торговле фьючерсами (CFTC), за неделю до 5 сентября чистая спекулятивная позиция во фьючерсах на рубль впервые за 3 месяца стала длинной (+486 контрактов против -43 контрактов неделе ранее). Таким образом, впервые с июня спекулянты находятся в чистом «лонге» по российской валюте, а это значит, что «топливо» для технического укрепления рубля закончилось. Напомним, что до этого против российской валюты был открыт шорт, который на максимуме объема этим летом достигал объёмов панической продажи декабря 2014-го, однако подобное позиционирование рынка деривативов никак не подтверждалось долговым рынком. Сейчас эта дивергенция устранена. Что до фундаментальной картины, она, по-прежнему, невесёлая. Нефть рискует развить движение к новым минимумам, долговой и, как следствие, валютный рынок рискуют оказаться под давлением проблем банков т.н. «московского кольца», связанных с попавшим ранее под санацию «Открытием», геополитические риски могут спровоцировать усиление «бегства в качество», тем более что Россия может быть непосредственно затронута конфликтом на Дальнем Востоке. Резюмируя, мы полагаем, что фаза активного укрепления рубля закончилась. Мы рекомендуем активно продавать рубль, не дожидаясь дальнейших попыток его укрепления. Цель внутри текущей недели – 58.7. Мы ожидаем взятия этого уровня, после чего – ускорения в направлении 60, и, далее, 62. Фондовый рынок Американский фондовый рынок под давлением рисков, вероятно, снижение продолжится и на этой неделе. Российский рынок рос на сильном рубле, но, как мы и ожидали, остановился в районе 1120. Исходя из предположения, что ралли рубля закончилось, мы рекомендуем снова осторожно продавать РТС, рассчитывая на снижение индекса снова в район 1050. Дмитрий Голубовский аналитик ФГ «Калита-Финанс» Подробно: https://www.kalita-finance.ru/analitika/goryachie-situacii-nedeli/holostoy-vistrel-ecb
And we're back at all time highs. With traders paring back risk positions on Friday ahead of a weekend full of potential risk events, Monday has seen a global "risk-on" session in which global stocks rose back to record highs and US futures jumped, the dollar gained, Treasuries retreated, while VIX and dollar slumped as appetite for risk returned to global markets after North Korean failed to conduct an anticipated missile test failed to materialize and Hurricane Irma appears to have struck the U.S. with less force than feared. The MSCI All-Country World Index increased 0.3% to the highest on record with the largest climb in more than a week, while that "other" trade also outperformed, as the MSCI Emerging Market Index increased 0.4% to the highest in about three years. Safe havens such as the yen and Swiss franc all also fell. Amid the risk-on tone, the dollar registered its biggest gains in the currency markets in ten days. It added 0.5 percent against its perceived safe-haven Japanese counterpart the yen JPY and clawed back ground against the high-flying euro as an ECB policymaker flagged caution about the single currency’s recent rise. “The good news was that the eye of Hurricane Irma took a path west of Miami and has since weakened to a Category 1 storm so that damage in Florida – whilst still severe... appears not to be quite as catastrophic as had been feared last week,” said Daiwa Capital Markets strategist Chris Scicluna. “And thankfully there was no bad weekend news out of North Korea either.” As Bloomberg summarizes the post-weekend action, it was marked by the unwind of risk-off related hedges after the impact of Hurricane Irma is smaller than initially feared and North Korea does not conduct any military activity over the weekend. JPY and CHF consequently underperform; Yuan continues to weaken after PBOC removed reserve requirement on FX forwards. DXY retraces overnight rally to trade flat, EMFX rallies against USD. European equity markets rally strongly from the open, insurance sector leads relief rally followed by financial services. Bund and UST curves both bear steepen, 10Y futures gap lower and stay within a tight range, similar move in spot gold. Industrial metals rally after China inflation data; Brent-WTI spread tightens after Friday’s sharp widening move. Gold sank 0.7 percent to $1,337.62 an ounce, the biggest dip in almost four weeks, although it still remains at notably elevated levels as shown below. The Stoxx Europe 600 Index jumped the most in more than a week, rising for the fourth day, as all the region’s major stock gauges advanced and almost every sector gained. Earlier, equities across Asia traded in the green. Oil advanced as Gulf Coast refining capacity continued to recover after getting hit by Harvey. Stoxx 600 up 0.95% to 379.08, with insurers leading gains after three straight weeks of declines, amid relief that any impact from storm damages in the U.S. may be less than anticipated. In Asia, the MSCI Asia-Pacific Index jumped 0.6 percent to hit the highest since December 2007. The Topix index advanced 1.2 percent at the close in Tokyo, its steepest advance since early June. Japan’s Nikkei rose 1.4 percent after Pyongyang held a massive celebration to congratulate the nuclear scientists and technicians who steered the country’s sixth and largest nuclear test a week earlier. South Korea’s Kospi index rose 0.7 percent as did the S&P/ASX 200 Index in Sydney. Hong Kong’s Hang Seng Index rose 1 percent, while gauges in China fluctuated. The Japanese yen sank 0.6 percent to 108.44 per dollar, the biggest dip in almost four weeks. “It’s too early to say the (North Korean) risks are gone, but one thing for sure is that market players now think the situation won’t get worse as it did some weeks ago,” said Lee Kyung-min, a stock analyst at Daishin Securities in Seoul. Lee said many foreign investors and domestic institutions were purchasing South Korean tech and chemicals shares as quarterly earning season neared. Continuing Friday's action, the onshore yuan headed for its biggest decline in 8 months, with sentiment taking a hit after China’s central bank removed trading curbs on foreign-exchange forwards. “The removal potentially makes it easier for traders to purchase the USD, easing the pressure for yuan appreciation,” said analysts at ANZ in a note. “The change likely signals some discomfort about the stronger yuan and its impact on Chinese exports.” As a result, the CNY weakened 0.55% to 6.5246 per dollar, set for the biggest drop since January on a closing basis. The PBOC strengthenedthe daily reference rate for 11th day, longest run since 2005; sets it 0.05% stronger at 6.4997 per dollar, however, this was weaker than the 6.4834 average forecasts from a survey of 16 traders and analysts. In offshore markets, the CNH dropped 0.51% to 6.5290 per dollar in Hong Kong. Perhaps in an attempt to limit losses, the central bank once again intervened by boosting margin costs, and the overnight CNH Hibor rose 78 basis points, the most since June 1, to 2.29433%. One- month CNH borrowing cost climbs 50 basis points to 3.60633%. Also in China, August inflation readings were above market on Saturday and confirmed the rise in pricing pressure seen in the PMI data earlier in the week. The CPI rose +0.4% mom, lifting annual growth to +1.8% yoy (vs. +1.6% expected), which is the fastest pace since January. This partly reflects a smaller deflationary contribution from the food sector (prices now down just -0.2% yoy). However, non-food inflation picked up three-tenths to +2.3% yoy. Elsewhere, a +0.9% mom rise in August PPI saw through-year inflation measured at the producer level rise to +6.3% yoy (vs. +5.7% expected). There were also reports Beijing was planning to shut down local crypto-currency exchanges, dealing a blow to bitcoin’s recent stellar rally. Bitcoin was quoted at $4,300 BTC=BTSP on the BitStamp platform, off a recent record high of nearly $5,000. In commodity markets, gold softened 0.7 percent to $1,337.81 an ounce, away from a one-year peak of $1,357.54. Oil prices regained a little ground after the Saudi oil minister discussed the possible extension of a pact to cut global oil supplies beyond March 2018 with his Venezuelan and Kazakh counterparts. The news of the talks on Sunday helped offset the downward pressure on oil prices amid worries that energy demand would be hit hard by Hurricane Irma. In rates, the yield on 10-year Treasuries gained three basis points to 2.09 percent. Germany’s 10-year yield climbed one basis point to 0.33 percent. Britain’s 10-year yield increased three basis points to 1.018 percent. Market Snapshot S&P 500 futures up 0.5% to 2,475.25 STOXX Europe 600 up 0.9% to 379.08 MSCI Asia up 0.5% to 162.41 MSCI Asia ex Japan up 0.5% to 536.22 Nikkei up 1.4% to 19,545.77 Topix up 1.2% to 1,612.26 Hang Seng Index up 1% to 27,955.13 Shanghai Composite up 0.3% to 3,376.42 Sensex up 0.8% to 31,924.11 Australia S&P/ASX 200 up 0.7% to 5,713.15 Kospi up 0.7% to 2,359.08 German 10Y yield rose 2.2 bps to 0.334% Euro down 0.1% to $1.2022 Brent Futures down 0.5% to $53.52/bbl Italian 10Y yield rose 3.4 bps to 1.668% Spanish 10Y yield fell 0.2 bps to 1.542% Gold spot down 0.7% to $1,336.69 U.S. Dollar Index up 0.1% to 91.46 Bulletin Headline summary from RanSquawk: Risk-on theme as North Korea refrains from missile tests, insurers outperform on lower damage estimates from hurricane ECB’s Coeure and Mersch speak; both mention subdued inflation pressures Looking ahead, highlights include UN vote on North Korean sanctions, UK vote on Brexit Bill, US 3y note auction Top Overnight News Irma Weakens After Pummeling Miami, Reducing Damage Forecast Irma Cuts Power to 4.5 Million, Shuts Ports and Imperils Crops Delta Eyes Limited Florida Service, Atlanta Hub Cancellations Europe’s Reinsurers Jump as Florida Avoids Worst From Irma ECB’s Coeure: monetary policy never acts in isolation on the exchange rate and in periods of recovery the positive confidence and stimulus effects of monetary policy are likely to offset, at least in part, the disinflationary effects of a stronger currency coming from expectations of tighter policy El Mundo: German govt wants Weidmann to be next ECB President; current Spanish Economy Minister De Guindos well placed to be new Vice President Austria: EUR 100y bond mandated for syndication, dependent on investor feedback NHC: Irma continuing to weaken; hurricane warning changed to tropical storm warning China Aug. CPI y/y: 1.8% vs 1.6% est; PPI 6.3% vs 5.7% est. North Korean Sanctions: U.S-drafted resolution for UN Security Council drops proposed oil embargo which was opposed by China and Russia, according to people familiar: Reuters Trump Debt Limit Deal Undermines Trust Among GOP on Tax Overhaul Teva Picks Lundbeck’s Schultz to Revive Israeli Drugmaker North Korea Warns U.S. of ‘Greatest Pain’ if Sanctions Pass Boeing to Design, Build Medium Earth Orbit Satellites for SES Pilgrim’s Pride Is Said to Near Deal for U.K. Producer Moy Park Blackstone Is Said to Bid for Americold, New York Post Says Asia bourses began the week on the front-foot amid a relief rally after North Korea refrained from firing a missile over the weekend and instead launched a tirade of threats towards the US. Although there were widespread expectations for a possible missile test to commemorate its Founding Day, North Korea abstained from any action which underpinned both ASX 200 (+0.8%) and Nikkei 225 (+1.4%), with exporters in the latter further underpinned by JPY weakness. Chinese markets ignored the PBoC's continued skip of open market operations, as Hang Seng (+1.0%) and Shanghai Comp. (+0.1%) conformed to the positive risk sentiment which was also supported higher than expected China CPI and PPI data that suggested stronger economic activity. 10yr JGBs were lower with demand weighed amid the positive risk tone across the region and a lack of Rinban announcement by the BoJ. PBoC set CNY mid-point at 6.4997 (Prev. 6.5032); 11th consecutive firmer fix which is the longest streak since 2005. PBoC will no longer require financial institutions to set aside funds when purchasing USD on behalf of clients through forwards. China inflation data printed over the weekend, coming stronger on the back of higher food and commodity prices: Chinese CPI (Aug) M/M 0.4% vs. Exp. 0.3% (Prev. 0.1%). Chinese CPI (Aug) Y/Y 1.8% vs. Exp. 1.6% (Prev. 1.4%) Chinese PPI (Aug) Y/Y 6.3% vs. Exp. 5.7% (Prev. 5.5%) Top Asian News Hedge Fund Bridgewater Is Said to Consider China Onshore Fund China Latest Bond Default Is a Cautionary Tale for Investors IndusInd Is Said to Discuss $2.2 Billion Bharat Financial Deal China Thinks the U.S. Holds Key to Solve North Korea Crisis Blackstone to Buy Stake in India’s Distressed Assets Firm: Mint China May Unveil Car Emissions Rules This Week, Association Says Bank Indonesia Sees Rupiah at 13,420/USD by Year-End: Kontan China’s Three-Year Focus on Preventing Yuan Slump Is Over: HSBC In European markets, risk on tone has also dictated early trade, as geopolitical concerns were slowed, with North Korea refraining from conducting any missile tests over the weekend. European bourses trade in the green across the board – financials lead the all green charge, buoyed by insurance names, as concerns of Hurricane Irma’s damage have softened, with the estimate damage reduced by USD 49bln, from USD 200bln to USD 151bln, according to Enki Research. A gap lower was observed in the Eurex open, with both the Bund and now Gilts trading around session lows. Limited volatility has been witnessed however, with subdued trade evident, as many are likely to await a slew of CPI data this week, joined by the latest BoE interest rate decision on Thursday. Outperformance has been seen in the longer term BTP, helped by slight relief at the Tesoro’s opting to tap the 10/36 instead of the new 3/48. 30y BTPs are 5bps tighter to Bunds, and near 2bps tighter to Bonos, as they lead the eurozone market. Elsewhere, a rare Monday US note auction is due later, with USD 24bln 3y notes set to be auctioned on a week that sees 3s, 10s and 30s. Top European News Italy Production Unexpectedly Rises In Sign of Faster Recovery London to Remain Center of Europe Private Equity, Huth Tells HB May Senses Victory on Brexit Bill That Faces Tougher Times Goldman Sachs to Expand Retail Banking Business to U.K., FT Says Astra Doubles Down on Cancer Research Despite Key Trial Setback Brookfield May Be Sole Bidder for Arqiva Auction: Sunday Times Nordea’s ECB Move Unlikely to Boost Dividends on Capital Relief Lundbeck CEO Shock Resignation a Large Negative: Credit Suisse In commodities, comments from ECB’s Coeure were initially ignored by the market, however, as his speech was digested, some jumped on his comments stating that the policy-relevant horizon - The "Medium Term" concept in our monetary policy strategy - is likely to be longer given the persistence of subdued inflationary pressures. The marginal dovish swing, did see a brief break through 1.20, however, normal theme has resumed in EUR/USD, breaking back inside Friday’s trading range. The JPY is weaker amid the risk-on sentiment following the lack of any missile test from North Korea with USD/JPY holding firm above 108.50. Early volatility was witnessed in the NOK, as Norway’s CPI and Core Inflation figures missed across the board. EUR/NOK shot through September’s high, as buyers continue to control the pair following the strong support seen around the 9.22 area. Today’s election in Norway could also gain some attention with polls to close to call, although results are not expected until the early hours of Tuesday morning. In currencies, WTI and Brent crude futures do trade off highs in recent trade, despite comments over the weekend from Saudi’s Falih, stating that discussions have begun with Venezuela and Kazakhstan on the possibility of extensions on the global oil supply cut beyond 2018. Precious metals have suffered throughout Asian and early European trade, a result of the increased risk tone and the lack of North Korean action over the weekend. US Event Calendar Nothing major scheduled DB's Jim Reid concludes the overnight wrap It’s been a busy couple of weeks since markets fully emerged from the summer lull but this week should see a renewed focus on the data as we’ve got a busy week ahead for global CPI reports which should test the inflation pulse once again. The highlight will likely be this Thursday when we receive the US CPI report for August but in the meantime we’ve got CPI due in Norway and Denmark this morning, Sweden and the UK tomorrow, Germany (final) and Spain on Wednesday along with the final readings for France and Italy on Thursday. PPI in the US on Wednesday is also worth a watch given that the healthcare component is used as an estimator for the same component in the core PCE deflator. Over the weekend we’ve already received a slightly stronger than expected CPI and PPI print in China. More on that shortly. Of those above, the US CPI report takes on a little bit more focus this week not only for the slightly dampened Fed outlook right now but also because core CPI has disappointed by missing consensus expectations for the last five months. Our US economists and the market have the headline and core readings pegged at +0.3% mom and +0.2% mom respectively. It’s worth noting though that should the core reading finally print in-line, the YoY rate is still likely to slip one-tenth to +1.6% which would put it at the lowest since January 2014. Indeed, our US economists are of the view that the core reading may not bottom out until Q1 2018 before then tracking back towards the Fed’s 2% target. In markets, it feels like another disappointing report will likely see 10y Treasury yields test below 2% having closed at 2.051% on Friday. After touching at a high of 2.395% back on July 7th yields have fallen 34bps in just over two months and DB’s Dominic Konstam now thinks that the next level is a move lower to 1.8%. Dominic mentioned in his weekly on the weekend that there are three broad themes driving markets currently including geopolitical/politics, the Fed overkill-low inflation equilibrium nexus and an emerging concern for a still small but rising US recession probability associated with liquidity and balance sheet reduction. The ‘R’ word hasn’t been frequently used of late but Dominic notes that standard recession probability monitors of
Конъюнктура глобальных рынков Рынки завершили неделю снижением Минувшая неделя для мировых рынков завершилась снижением в большинстве сегментов рискованных активов на фоне геополитических волнений и оценки экономических потерь после ураганов в США. В США определенным позитивом была поддержка вслед за Сенатом Палатой представителей увеличения лимита госдолга, которое необходимо для финансирования работы правительства до декабря текущего года. Глава ФРБ Нью- Йорка в пятницу говорил о том, что восстановление повреждений от ураганов исторически приносят экономике США больше пользы, чем угроз. В то же время, Уильям Дадли заявил, что текущая ситуация может стать поводом для переноса очередного повышения базовой процентной ставки на следующий год. На валютном рынке наблюдается повышенная волатильность. Единая валюта поддерживается "голубиными" заявлениями Федрезерва США, а также уверенным тоном европейского ЦБ на фоне умеренного роста экономики. В пятницу основная пара поднималась до отметки в $1.2080. Еще одной особенностью являются резкие движения на рынке казначейских обязательств США, доходности которых за неделю с легкостью изменялись на 10-12 бп за день. В то же время, на европейские защитные активы спрос выглядит более стабильным, что может свидетельствовать о фундаментальной природе оттока капитала с американских площадок. Денежно-кредитный и валютный рынки Условия рынка улучшились Конъюнктура российского денежно-кредитного рынка во второй половине прошлой недели стремительно улучшалась, рублевый овернайт со среды снизился на 30 бп, отражая сохранение избытка ликвидности в банковской системе. На рынке МБК 1-дневные кредиты в пятницу обходились в среднем под 8.70% годовых (-13 бп), 7-дневные – под 8.90 годовых (-9 бп), междилерское репо с облигациями на 1 день – под 8.54% годовых (-11 бп). Благоприятные условия локального денежного рынка должны сохраниться и на текущей неделе. Несмотря на старт в пятницу налогового периода сентября, который отвлечет из банковской системы около 1.4 трлн руб. (1.3 трлн руб. в августе), мы ожидаем сохранения комфортной конъюнктуры. Рубль избежал перегрева Торги на валютном рынке в пятницу привели к небольшому ослаблению рубля, который стремительно укреплялся на протяжении всей недели. Поводом для коррекции стало снижение нефтяных котировок в среднем на 1.5% и снижение спроса на высокодоходные активы. Курс доллара на закрытие биржи составил 57.37 руб. (-13 коп.), курс евро – 69.03 руб. (+61 коп.). На международном валютном рынке доллар сдавал позиции к евро, теряя в течение дня больше 0.5 пп. Однако по итогам дня основная пара выросла на 10 бп до $1.12030. Рубль заметно укрепился за неделю, что произошло во многом из-за глобального возвращения интереса к высокодоходным активам и валютам. Инвесторы в последние месяцы слишком часто меняют предпочтения при аллокации капитала, поэтому доверия к текущему движения у нас нет. В сложившихся условиях цены на нефть в меньшей поддерживают рубль, хотя и находятся на довольно высоких уровнях. Рублю на неделе предстоит еще одно испытание – заседание ЦБ РФ, на котором размер ключевой ставки может быть понижен на 50 бп. Впрочем, мы не ждем выраженно-негативной реакции рубля на это событие: долговые рынки уже заложили в котировки такой шаг регулятора, а значит и в котировках рубля событие уже отражено. Российский долговой рынок Долговые рынки на подъеме Евробонды ЕМ пользовались заметным спрос на протяжении всей прошлой недели, несмотря на волатильность базовых активов. Снижение доходностей UST за неделю составило 10-12 бп, что не привело к расширению суверенных кредитных спрэдов, они оказались стабильны. Российские евробонды немного отставали от средней динамики бумаг ЕМ. За неделю доходности дальнего сегмента суверенной кривой снизились на 5-9 бп, на среднем участке – на 13-17 бп. Внутренний долговой рынок поддерживается остатками прежнего всплеска активности керри-трейдеров и инфляционной статистикой, увеличившей ожидаемый шаг снижения размера ключевой ставки ЦБ РФ на сентябрьском заседании с 25 до 50 бп. Динамика рынка ОФЗ на этом фоне была позитивной: дальние выпуски снизились в доходности на 9-11 бп, на средний участок – на 12-18 бп.
European stocks dropped, Asian and EM market rose, and S&P were lower by 0.3% as investors assessed the latest overnight carnage in the USD which plunged to the lowest level since the start of 2015, sending the USDJPY tumbling to 107, the euro extending gains to just shy of $1.21 and a slowdown in China’s export growth which however did not prevent the Yuan from posting its best weekly gain on record. It was all about the seemingly huge currency moves overnight as the dollar plunged for the 7th day in a row, the biggest 7 day drop in 4 months, amid doubts about further Federal Reserve tightening, North Korea tensions and as Hurricane Irma threatens South Florida. The Yen rose to the strongest level against the dollar since Nov. amid nervousness about possible provocation from North Korea ahead of its foundation day on Saturday; yen surged past 108 per dollar as options barriers gave way, triggering a series of stop-losses. The Yuan rallied toward 6.45/USD in both onshore and offshore markets as traders speculate PBOC will tolerate a stronger currency after it rose past the psychological 6.50 mark Thursday. The Australian dollar surged to the highest in more than two years on the back of dollar weakness while the cherry on top was the 10Y TSY yield touching a YTD low of 2.014% before rebounding to ~2.035%. Meanwhile, natural disasters were aplenty, including the most powerful earthquake this century to shake Mexico, while Hurricane Irma is projected to hit Florida Sunday, and North Korea is widely expected to launch an ICBM on its September 9 holiday. As reported last night, the big overnight story was the dramatic plunge in the dollar in Asian trading.... ... which also pushed the EURUSD to the highest level since January 2015, a move that was not helped by this morning's Reuters "trial balloon" according to which the ECB was considering 4 QE reducing scenarios. “At its current level, the Euro is not a threat for the Eurozone,” Philippe Ithurbide, global head of research at Amundi Asset Management, said in a report. “If the euro stabilizes, or continues a gradual appreciation path as in our base scenario, the ECB could announce -- maybe in October -- a reduction, starting in January 2018, of the quantitative easing program. Should the euro continue to appreciate rapidly, the ECB could become more dovish and postpone its tapering.” This morning, the USD has attempted to stabilize after said heavy selling in Asian session, which has seen the DXY hit a fresh YTD low. Meanwhile, the USD/CNH has bounced from levels last seen in Dec. 2015 after reports of Chinese concerns on yuan strength. The Yuan was set for its best weekly gain since records began in 2007. The onshore yuan headed for the third weekly advance in a row, with a gauge of the dollar tumbling toward the biggest decline since May. The CNY climbed 0.48% to 6.4543 per dollar as of 5:11 p.m. in Shanghai on Friday; extending the weekly advance to 1.6%, the most since Bloomberg began compiling CFETS data in 2007. On Friday morning, the PBOC strengthened the daily reference rate by 0.36% to 6.5032 per dollar, extending the 10-day run of increases to 2.4%. The Bloomberg replica of CFETS index, which tracks the yuan against 24 currencies, climbs 0.10% to 95.16 The Yuan’s recent appreciation has been bigger than expected - and it’s also more than what can be explained by the dollar’s moves - which is likely driven by strong corporate dollar selling and positive market sentiment, UBS economist Wang Tao writes in report sent Friday. "Allowing the yuan to gain versus the basket is a step toward convincing the market of increased two-way flexibility; not expecting it to embark on a multi-year appreciation path in effective term" Wang adeded. According to Reuters, China policy makers are increasingly worried a sharp CNY rally could hurt exports and the economy, however China is unlikely to intervene forcefully to cap the CNY due to worries of criticism from the US. Overnight, NY Fed president Bill Dudley became the latest U.S. central banker to lay out his views ahead of a policy-setting meeting later this month as expectations for an interest-rate increase have been scaled back. According to Bloomberg, Dudley reiterated the need to continue raising rates while conceding that the Fed may have to rethink its inflation model. USD/JPY holds close to overnight levels after tripping downside stops through 108.00. As noted earlier, Bund futures sell off after latest ECB sources give more details on potential tapering, curve steepens. Treasurys partially retrace overnight spike higher, precipitated by the USD weakness. In equities, European equity markets open lower and slowly grind back to unchanged led by bank sector, Santander +2.5% after being upgraded at Morgan Stanley. Mining sector underperforms after base metals sell off aggressively in response to China trade data. Stocks in Europe struggled for traction as the euro extended its march above $1.20, while S&P 500 index futures dropped. The most powerful earthquake this century shook Mexico, adding to investor anxiety. Asia equity markets traded mixed following similar indecisiveness in US and as the region digested a slew of economic releases including Japanese GDP and Chinese Trade data. ASX 200 and Nikkei 225 were lower as financials mirrored the underperformance in their US peers, with Japan also dampened by a weaker than expected Final Q2 GDP which showed the largest downward revision since the current accounting method began in 2010. Shanghai Comp. and Hang Seng were positive despite another OMO skip by the PBoC which resulted to a larger net weekly liquidity drain W/W, as strength in property and energy names kept sentiment upbeat while traders mulled over the release of mixed Chinese Data. China released its latest trade balance data which showed that Exports missed, but Imports surpassed expectations to suggest strong domestic demand. Exports growth for China moderated to 5.5% yoy in August from 7.2% yoy in July, below expectations, while imports growth was up to 13.3% yoy from 11.0% yoy in July, above consensus. In sequential terms, exports contracted by 0.4% mom sa, albeit less than that in July ( -2.0% mom sa). Imports increased by 2.9% mom sa, rebounding from -1.9% mom sa in July. The trade surplus moderated to US$42.0bn from US$46.7bn in July Chinese Trade Balance (CNY)(Aug) M/M 286.5B vs. Exp. 335.7B (Prev. 321.2B) Chinese Exports (CNY)(Aug) Y/Y 6.90% vs. Exp. 8.70% (Prev. 11.20%) Chinese Imports (CNY)(Aug) Y/Y 14.40% vs. Exp. 11.70% (Prev. 14.70%) Meanwhile, the threat from North Korea lingers. U.S. President Donald Trump said it’s not “inevitable” that the U.S. will wind up in a war with North Korea over its continued development of nuclear weapons, though military action remains an option. Pyongyang may test a missile this weekend to coincide with its “founding day” on Sept. 9. Ten-year Treasury yields fell toward 2 percent and gold headed for a third week of advance ahead of a potential North Korean missile launch. Copper led most industrial metals lower and crude oil dropped. The yield on 10-year Treasuries declined less than one basis point to 2.04 percent, the lowest in 10 months. Britain’s 10-year yield advanced one basis point to 0.982 percent. West Texas Intermediate crude fell 0.4 percent to $48.91 a barrel, the largest fall in more than a week. Gold gained 0.2 percent to $1,351.25 an ounce, the strongest in almost 13 months. Copper declined 1.4 percent to $6,802.00 per metric ton, the lowest in more than a week on the largest drop in more than four months. Economic data include wholesale inventories. Market Snapshot S&P 500 futures down 0.4% to 2,455.75 STOXX Europe 600 down 0.2% to 374.04 German 10Y yield fell 1.3 bps to 0.294% MSCI Asia up 0.4% to 161.82 MSCI Asia ex Japan up 0.4% to 534.48 Nikkei down 0.6% to 19,274.82 Topix down 0.3% to 1,593.54 Hang Seng Index up 0.5% to 27,668.47 Shanghai Composite down 0.01% to 3,365.24 Sensex up 0.03% to 31,671.21 Australia S&P/ASX 200 down 0.3% to 5,672.62 Kospi down 0.1% to 2,343.72 Euro up 0.2% to $1.2046 Italian 10Y yield fell 10.2 bps to 1.634% Spanish 10Y yield rose 1.6 bps to 1.511% Brent Futures up 0.5% to $54.76/bbl Gold spot up 0.4% to $1,354.10 U.S. Dollar Index down 0.4% to 91.27 Top Overnight News Reuters: ECB discussed scenarios yesterday and agreed the next step is to cut stimulus but should be done with broadest possible consensus; options included reduction to EU20b or EU40b and extension by 6 or 9 months, according to people familiar; ECB’s Liikanen: Some QE decisions will be taken in December Fed’s Dudley: Appropriate to continue to remove monetary policy accommodation gradually, low inflation may be structural; Fed’s George says it’s time to continue with Fed rate hikes President Donald Trump said it’s not “inevitable” that the U.S. will wind up in a war with North Korea over its continued development of nuclear weapons, but that military action remains an option Trump suffered another setback on his travel ban, with an appeals panel leaving in place a lower-court ruling that forces the administration to accept people with grandparents, cousins and other relatives in the U.S. Traders braced for economic damage to Florida from Hurricane Irma, set to make landfall on Sunday. The most powerful earthquake this century shook Mexico, adding to investor anxiety and sending the peso weaker Federal Reserve Bank of New York President William Dudley reiterated the need to continue raising interest rates while conceding that the U.S. central bank’s inflation model may be in for a rethink soon White House is considering at least six candidates to be the next head of the Fed; a chance Yellen will be renominated, though Cohn’s prospects have dimmed according to people familiar Chinese officials are beginning to worry about the rallying yuan due to the strain on exporters, according to people familiar: Reuters China Aug. Trade Balance: +$41.9b vs +$48.5b est; Exports 5.5% vs 6.0% est; Imports 13.3% vs 10.0% est. Delta Cancels Flights for South Florida Airports on Irma Strongest Quake in Century Hits Mexico, at Least Three Dead White House Is Said to Be Considering at Least Six for Fed Chair Equifax’s Historic Hack May Have Exposed Almost Half of U.S. U.S. Is Said to Target North Korea Violators, With ZTE’s Help BlackRock Is Said to Be in Talks for Calpers’s Buyout Business ECB Is Said to Study QE Options That Don’t Need Rule Tweaks Apple-Backed Billionaire Makes Case to Buy Toshiba Chip Unit China’s Export Engine Slows as Imports Maintain Steady Gains Asia equity markets traded mixed following similar indecisiveness in US and as the region digested a slew of economic releases including Japanese GDP and Chinese Trade data. ASX 200 and Nikkei 225 were lower as financials mirrored the underperformance in their US peers, with Japan also dampened by a weaker than expected Final Q2 GDP which showed the largest downward revision since the current accounting method began in 2010. Shanghai Comp. and Hang Seng were positive despite another OMO skip by the PBoC which resulted to a larger net weekly liquidity drain W/W, as strength in property and energy names kept sentiment upbeat while participants also mulled over the release of mixed Chinese Data where Trade Balance and Exports missed, but Imports surpassed expectations to suggest strong domestic demand. 10yr JGBs gained amid the risk averse sentiment in Japan and as yields tracked the declines seen in their US counterparts, while the BoJ were also present in the market for a total of JPY 880bln of JGBs across the curve. China policy makers worry a sharp CNY rally could hurt exports and the economy; China unlikely to intervene forcefully to cap the CNY due to worries of criticism from the US, according to sources. Top Asian News Tencent’s Giant Rally Is a Problem for Some China Investors SpiceJet Shows Long-Haul Intent With Boeing-Airbus Contest Japan’s GDP Growth Revised Down on Softer Capital Expenditure Citi Sees Pressure on Yuan, Philippines Peso Amid Reserves Trend China No. 4 Developer Seeks to Repay Overdue Debt at Lower Rate Topix Has Worst Week Since April on N. Korea, Natural Disasters Yuan Surge Feeds Speculation Policy Makers to Loosen Control Soft risk off tone has highlighted this lacklustre Friday morning, as much of the price action was seen yesterday. Equity markets opened marginally lower and have traded around these levels from the open with 8/10 Euro Stoxx sectors trading in the red. The stronger EUR has supported the mild risk-off tone following yesterday’s ECB meeting and the EUR continuing to ramp. Stock specific sees basic resources struggling, being affected by the pressure of copper prices, elsewhere the finance sector is one to trade in the marginal green, buoyed by Morgan Stanley’s upgrade of Santander. Peripheral bonds are seeing slight downward pressure, likely due to profit taking following yesterday’s outperformance amid the ECB press conference. Price action across European curves has been quiet, as the EU AAAs all trade around levels seen in the open. Top European News U.K. Manufacturing Jumps, Construction Falls as Quarter Starts Akzo Nobel Warns on 2017 Profit as Paintmaker Replaces CFO Nordea Move Has Riksbank Chief Warning of Dangerous Fallout Swedish Government Backs Away From Plan to Cut Riksbank Reserves Overlooked in Cancer, Glaxo and Sanofi Look to Get Into the Race Greene King Shares Slump on Trading Update, Dragging Pubs Lower Mercedes Fields Buzz Aldrin to Take on BMW While Fiat Stays Home Trinity Mirror Starts Talks to Buy Desmond’s U.K. Tabloids Germany’s Facebook Case Tackles Crucial Digital Issues: Mundt FX markets have seen subdued trade following yesterday’s volatility being followed by an attack on the greenback overnight. Much anticipation was on the UK Manufacturing and Industrial Production data, the formers slight beat vs. expected sparked little sterling buying, with the data causing no real price action. USD/JPY broke through the 108 handle during the Asia/European crossover, knocking through option barriers on the way through. The week’s aggressive buying between 108.00/108.50 has aided with the bearish pressure, as stops were triggered through the 108.00 level, now firmly through April’s low. July 16, 2016 high has paved some support for the pair, however, a break through 107.50 is likely to see a 105 print. In commodities, the US storms remain a concern to energy traders, the catastrophic events are likely to lead to refiners and recovery projects competing for the same labour, in turn driving up costs or causing labour shortages. Brent futures have flipped back into its pre-hurricane backwardation after fears of a significant drop in crude demand failed to leak into markets. Copper has been the noticeable laggard in metal markets, as the precious metals all perform well amid the risk-off tone. Looking at the day ahead, there is the final reading for wholesale inventories along with consumer credit data. Away from the data, the Philadelphia Fed President Harker will speak on consumer behaviour in credit. US Event Calendar 8:45am: Fed’s Harker Speaks on Consumer Finance in Philadelphia 10am: Wholesale Inventories MoM, est. 0.4%, prior 0.4%; Wholesale Trade Sales MoM, est. 0.5%, prior 0.7% 3pm: Consumer Credit, est. $15.0b, prior $12.4b DB's Jim Reid concludes the overnight wrap So unsurprisingly the talk of the town over the past 24 hours has been the ECB and President Draghi. As expected there was no change to policy but that was never going to be the talking point. Draghi did however more or less confirm that a decision on tapering will likely be taken at the October meeting. A “very, very preliminary discussion” was said to have taken place within the governing council yesterday but the “bulk of decisions” will be made in October for beyond 2017 according to the President. The biggest focus going into the meeting though was on what sort of rhetoric we would get from Draghi around the recent strength in the currency. While questioned and addressed at least half a dozen times, the general feeling was that Draghi felt relatively comfortable suggesting that he and the council view Euro strength as a sign of improving economic fundamentals. That gave the green light for the single currency to rally another +0.89% yesterday and so close above 1.200 for the first time since January 2015. This morning it’s up further, at 1.2070 as we go to print. The President did yesterday highlight up front that “the recent volatility in the exchange rate represents a source of uncertainty which requires monitoring” along with making various other references. However Draghi also played up growth and failed to really downplay inflation. Draghi called growth “robust” and “broad based” and signalled that the ECB had upgraded this year’s growth forecast to 2.2% from 1.9%. 2018 and 2019 forecasts were left unchanged. On inflation the impact of the recent currency move was to only shade one-tenth off the 2018 and 2019 headline forecasts, and leave 2017 as is at 1.5%. That said core inflation expectations were revised down in 2019 by twotenths. Overall though it felt a bit like every time Draghi tried to downplay the currency he ended up caveating it with a positive. Away from that, another notable snippet from the press conference included Draghi saying that the ECB “haven’t really discussed the scarcity issue (for bond buying) because so far we’ve consistently shown that we’ve been able to cope with this issue quite successfully”. DB’s Mark Wall summed up in his report by saying that his baseline expectation is a “slow and extend” decision on QE at the October meeting, extending until mid-2018 at the slower rate of EUR40bn per month. He expects a dovish tightening and notes that the ECB could achieve this by justifying slower QE on the basis of partial normalisation of core while saying that full normalisation is susceptible to FX appreciation, and also maintaining the QE guidance by saying that the Bank is prepared to do more if necessary. The failure to temper the move in the currency resulted in an interesting market dynamic as it essentially cleared the path for European bonds to rally. 10y Bund yields closed -4.1bps lower at 0.302% and the lowest since late June. France and Netherlands were -5.0bps and -4.5bps lower respectively while the periphery outperformed with yields in Italy, Spain and Portugal -11.1bps, -7.3bps and -10.5bps respectively. The Stoxx 600 also rebounded from an early fall to close +0.27%. Meanwhile across the pond, 10y Treasuries plunged to a new YTD low during the day of 2.032% and are continuing to flirt with that 1% handle. They eventually closed just off that at 2.040% which is where they are this morning. That move for Treasuries appeared to be more European led but clearly the threat of Hurricane Irma (and two other Hurricanes) inching closer to Florida and reports per Bloomberg about another possible missile test by North Korea is keeping the bond market propped up. The cloud hanging over the Fed now with the all the antics in Washington and an uncertain Fed Board composition is clearly not helping too. The S&P 500 closed virtually flat (-0.02%), but within the sectors, health care rose but banks (-1.76%) and insurers (-1.90%) were hit given the potential drags from lower bond yields and Hurricane Irma respectively. Elsewhere, the US dollar index fell -0.68%, Gold rose +1.12% to a new one-year high but WTI Oil was little changed. On the topic of uncertainty, the feeling was that it might be a two-horse race between Janet Yellen and Gary Cohn to be the next Fed Chair, but Bloomberg reported last night that Trump may be considering six more possible candidates for the top job. The list is fairly broad and includes: Kevin Warsh (former Fed governor), Glenn Hubbard (professor at Columbia Uni.), John Taylor (professor at Stanford Uni.), Lawrence Lindsey (former economic advisor to President Bush), Richard Davis (former US Bancorp CEO) and John Allison (former CEO of BB&T). With the various other departures on the Board, Trump is going to have a rare opportunity to handpick and reshape the composition of the Federal Reserve. However as we’ve been saying in recent days, this very much keeps the clouds of uncertainty from dissipating over the Fed for a while. On a related note, following up from the Fed’s Vice-Chair Stanley Fischer’s early resignation the other day, our US team took a closer look at the potential implications. They argue that the FOMC has lost one of its more hawkish members and with the December FOMC decision already on a course to be contentious, it is possible that there could be at least three dissents to a rate hike decision. This morning in Asia, markets are heading into the end of the week a bit mixed. The Nikkei (-0.38%), Kospi (-0.13%) and ASX 200 (-0.36%) are all softer but the Hang Seng (+0.50%) and Shanghai Comp (+0.24%) have edged higher. It’s worth noting that trade data in China this morning showed export growth as slowing to +5.5% yoy in Dollar terms from +7.2%. Expectations were for a slower decline to +6.0%. Imports on the other hand surged to +13.3% yoy from +11.0% after the consensus was also for a slowdown in the growth rate. It’s worth noting that this is the second month in a row that export numbers have disappointed. Back to the US debt ceiling. Now that the September deadline has been extended to December, President Trump suggested yesterday that there are “a lot of good reasons” to get rid of the debt ceiling altogether. Senate minority leader Schumer and Senate Finance Chairman Hatch along with others supports the idea, but some do not, including House Speaker Paul Ryan who said that “there is a legitimate role for the power of the purse and Article One powers”. Staying with the US, we’ve had two more Fed speakers in the last 24 hours. The usually hawkish Cleveland’s Fed President Mester said she is “comfortable” raising interest rates again this year and added that not hiking rates between now and March 2018 is not her idea of a gradual rise. Elsewhere, The NY Fed President Dudley said that “I expect the US economy will perform quite well… as this occurs, I anticipate that wage growth will firm and price inflation will gradually rise” and that “we will continue to gradually remove monetary policy accommodation”. Moving on. The latest on Brexit talks yesterday saw EU Chief Brexit negotiator David Barnier say “I’ve been very disappointed by the UK position…there is a moral dilemma here, you can’t have 27 (states) paying for what was decided by 28” and that “the UK needs to tell us what it wants and we will see what is possible”. Elsewhere, the President of the European Parliament, Antonio Tajani, said “it would seem very difficult that sufficient progress can be achieved by October”. Here in the UK, the Guardian noted that PM May has rejected an invite to address the EU Parliament to explain Britain’s position, instead preferring to discuss with leaders in closed sessions. Before we take a look at today’s calendar, a quick recap of yesterday’s economic data. In the US, the initial impact of Hurricane Harvey has seen initial jobless claims rise 62k to 298k (vs. 245k expected), with applications in Texas up 52k. Continuing claims were broadly in line at 1,940k (vs. 1,945k expected). Elsewhere, the final reading for nonfarm productivity was above market at +1.5% qoq (vs. +1.3% expected), resulting in a through-year gain of +1.3% yoy. Back in Europe, the final reading on the Eurozone’s 2Q GDP was unrevised at +0.6% qoq and +2.3% yoy (vs. 2.2% expected). In Germany, July industrial production was flat (vs. +0.5% mom expected), but annual growth is still up +4.0% yoy (vs. +4.6% expected). In the UK, the Halifax house price index was well above market at +1.1% mom (vs. +0.2% expected) and +2.6% yoy (vs. +2.1% expected). Over in France, the trade deficit widened to EUR6.0bn in July, with +4.9% yoy growth in exports outpaced by +9.2% yoy growth in imports. Looking at the day ahead, Germany’s trade balance, current account balance and export / imports stats are due this morning. For the UK and France, industrial production (+0.2% mom expected for UK; +0.5% mom for France), 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, the Philadelphia Fed President Harker will speak on consumer behaviour in credit.
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
Authored by Wolf Richter via WolfStreet.com, The fate of asset bubbles under the new regime. Everyone is hoping that next Friday and Saturday, at Sotheby’s auction in Monterey, California, the global asset class of collector cars will finally pull out of their ugly funk that nearly matches that during the Financial Crisis. “Hope” is the right word. Because reality has already curdled. Sotheby’s brims with hope and flair: Every August, the collector car world gathers to the Monterey Peninsula to see the magnificent roster of best-of-category and stunning rare automobiles that RM Sotheby’s has to offer. For over 30 years, it has been the pinnacle of collector car auctions and is known for setting new auction benchmarks with outstanding sales results. This asset class of beautiful machines – ranging in price from a 1962 Ferrari 250 GTO Berlinetta that sold for $38.1 million in 2014 to classic American muscle cars that can be bought for a few thousand dollars – is in trouble. The index for collector car prices in the August report by Hagerty, which specializes in insuring vintage automobiles, fell 1.0 point to 157.42. The index is now down 8% year-over-year, and down 15%, or 28.4 points, from its all-time high in August 2015 (186). Unlike stock market indices, the Hagerty Market Index is adjusted for inflation via the Consumer Price Index. So these are “real” changes in price levels. The index has now fallen nearly 7 points below the level of August 2014. That was three years ago! In fact, the index is now at the lowest level since March 2014. The chart below from Hagerty’s August report shows how the index surged 83% on an inflation-adjusted basis from August 2009 to its peak in September 2015, and how it has since given up one-third of those gains. This is what the inflation and deflation of an asset bubble looks like (I added the dates): During the Financial-Crisis, the index peaked in April 2008 at 121.0, then plunged 16% (20 points) to bottom out in August 2009 at 101.39. By then, the liquidity from the Fed’s zero-interest-rate policy and QE was washing across the world, and all asset prices began to soar. The current drop of 15% from the peak in “real” terms is just below the 16% drop during the Financial Crisis. But the current 28.4-point-drop from the peak exceeds the 20-point drop during the Financial Crisis. Concerning the current market, the Hagerty report added: While the auction activity section of the rating had been kept strong by increases in the number of cars sold at auction so far this year, the trend hasn’t continued and auction activity decreased for the second consecutive month thanks to a 2% drop in the number of cars sold compared to last month. Private sales activity also experienced its second consecutive decrease, again thanks to a small drop in the average sale price as well as a small drop in the number of vehicles selling for above their insured values. The number of owners expressing the belief that the values of their vehicles are increasing continues to gradually decline, and this is true for the owners of both mainstream and high-end vehicles. The drop is particularly pronounced, however, for owners of previously hot models like the Ferrari 308 and Ford GT. For the second month in a row, expert sentiment dropped more than any other section. The asset class of vintage automobiles was among the first bubbles to pop. This didn’t happen in one fell swoop. It’s a gradual process that started in the fall of 2015, and observers brushed it off because it was just a minor down tick as so many before. But since then, it has become relentless and persistent, with plenty of ups and downs. Every expression of hope that it would end soon has been frustrated along the way. And every day, there’s still hope. For example, back in May, the Hagerty report commented that “prices have started to normalize.” Since then, the index has continued its methodical decline. This may be what asset class deflation looks like under the new regime. There will be talk of “plateauing,” as is currently the case in commercial real estate. Then there will be talk of prices “normalizing,” as is the case in collector cars. Then there will be talk of “buying opportunities,” and so on. And there are ups and downs, and this may drag on for years. But month after month, buyers of vintage cars become a little less enthusiastic and sellers a little more eager. Yet, unlike during the Financial Crisis, there are no signs of panic. The tsunami of liquidity is as powerful as before. Financial conditions are easier than they were a year ago. There’s no forced selling. Just an orderly one-step-at-a-time asset bubble deflation. Now the Fed is tightening. QE ended about the time the classic car bubble peaked. The Fed has raised its target for the federal funds rate four times so far in this cycle. It will likely announce the QE unwind in September and “another rate hike later this year,” New York Fed president William Dudley told the AP. And the below-target inflation is not a problem. Read… Fed’s Dudley Drops Bombshell: Low Inflation “Actually Might Be a Good Thing”
It should be crystal clear to everyone that after 10 years of the most accommodative monetary policy in the worlds history the bond market is significantly overpriced. The bond market still has little to no yield (negative yields in some countries) to offset the abundance of risks – liquidity, duration and spread risks to name a couple. After 10 years, there are managers and firms whose success is in large part to risks taken in one trade – to be long fixed income and front run central bank policies. But someone forgot to tell them this trade is over. Large balance sheets continue to trade the bond market in a monopolistic, high volume basis hoping for some large issues to drive yields lower and generate pricing gains to offset such limited yields. If investors are hoping for an economic slowdown, lower levels of inflation, geopolitical risk or even a government shutdown to help drive yields, maybe they shouldn’t be in the trade to begin with. These are the bigger fool theory motivators to lower yields. Yields are now lower than prior cycles of recession, depression, war or pretty much any other risk this country has ever experienced. You can experience any and all of these risks and still have a probability yields shoot higher, not lower. But some say inflation is slowing down and that must be good for bonds. Normally bonds trade 200 to 300 basis points – or 2 to 3% above the level of inflation. Since inflation is currently around 2%, inflation has to go to -1% to bring bonds somewhat close to fair value. With health care and housing costs jumping and expected to continue to show above average price increases, the chances of deflation – even with all the lower biased adjustments our inflation statistics go through – is minimal. Comically, others say the debt ceiling debate is a source of volatility so own bonds for the flight to quality trade. So we reach our debt ceiling and have difficulties paying our bills – and that’s good for bonds??? It’s apparent that the Fed and other notable officials see the potential of a bond bubble deflating rapidly and the potential impact on the real economy. They have been trying to deflate it slowly by adjusting the Fed Funds rate off of zero and announcing a reduction in accumulated balance sheet. This week, the NY Federal Reserve President William Dudley said that he expects another Federal Funds rate increase this year. And Alan Greenspan, the former Federal Reserve chairman, has continued to express the risks to the markets from the bond bubble that has not corrected. Sadly, bonds have yet to respond. Should the Fed be doing more to prepare the markets? They talked and manipulated yields lower with unprecedented Fed policy. Should they have been doing the opposite years ago when the systemic risks were corrected? The Fed wants to be the life of the party, but not the chaperone. Since they have refused to take the punchbowl away from the party in a reasonable amount of time, the hangover is going to be a bad one this time. by Michael Carino, Greenwich Endeavors, 8/16/17 Michael Carino is the CEO of Greenwich Endeavors, a financial service firm, and has been a fund manager and owner for more than 20 years. He has positions that benefit from a normalized bond market and higher yield
One day after the 5th consecutive miss in US CPI, NY Fed President William Dudley threw currency and eurodollar traders for another loop when he said on Monday that it was not "unreasonable" to think that the central bank would begin trimming its balance sheet in September and sees another rate hike this year - supposedly in December - should economic data hold up, ignoring the message sent from monthly inflation reports. In an interview with the AP, Dudely warned that "the expectations of market participants are unreasonable," when asked if the expectation of the Fed reducing its bond holdings in September was accurate. The news sent the dollar and yields higher, pushing the 10Y from 2.2050% briefly to 2.2230%, although the move was subsequently faded. The news also sent December rate hike odds modestly higher on the day, up to 33% from 25% earlier, after Dudley said that he expects another rate rise as long as economic data meets his expectations. "I would expect — I would be in favor of doing another rate hike later this year." Despite the lack of inflation, Dudley expanded "my outlook for the economy hasn't changed materially since the beginning of the year. Continue to look for growths around 2%, slightly above trend, growth sufficient to continue to tighten the labor market. I did not raise my growth forecast after the Election because of the prospect of fiscal stimulus because I felt that there was a lot of uncertainty about how big it would be, what its composition would be, and when it would actually take effect. So, I always viewed it as a risk to the forecast. In other words, an upside risk to the forecast, but I never put it into my baseline forecast." Pressed on inflation, the NY Fed president said "the reason why inflation won't get up to 2% very quickly on a year-over-year basis is because we've had these very low inflation readings over the last 4 or 5 months. So it's going to take time for those to sort of drop out of the year-over-year calculation." "Now the reason why I think you'd want to continue to gradually remove monetary policy accommodation, even with inflation somewhat below target, is that 1) monetary policy is still accommodative, so the level of short-term rates is pretty low, and 2) and this is probably even more important, financial conditions have been easing rather than tightening. So despite the fact that we've raised short-term interest rates, financial conditions are easier today than they were a year ago." Some more highlights from his interview transcript, courtesy of Bloomberg: "The stock market's up, credit spreads have narrowed, the dollar has weakened, and those have more than offset the effects of somewhat higher short-term rates and the very modest increases that we've seen in longer-term yields." On December hike odds, Dudley said that "If it (data) evolves in line with my expectations, I would expect -- I would be in favor of doing another rate hike later this year." "I think that if the economy continues to grow above trend, and the labor market continues to tighten, I do think we'll get to the point where that will lead to higher wages and that will show up in terms of higher inflation." "Now, the question is at what level of the unemployment rate will that all take place? So, if there are these secular forces that are pushing inflation lower, perhaps we can actually go to a somewhat lower unemployment rate. I would actually view -- rather than people wringing their hands that this is so awful that inflation is low, it actually might be a good thing because it could allow you to run the economy at a little bit higher level of resource utilization, which I think ... people get employed, they get job skills, they'd be able to build their human capital over time. (00:07:29) The productive capacity of the US economy would be greater -- all those things would be good things." There was also the amusing, token take on the stock market as reflective of the current state of the economy: "My own view is that -- I'm not particularly concerned about where our asset prices are today for a couple of reasons. The main one is that I think that the asset prices are pretty consistent with what we're seeing in terms of the actual performance of the economy." Which of course, is a "fake news": Dudley also spoke on balance sheet reduction: "And second of all, we can obviously announce the start of the program but delay the actual start date. So I think that -- I don't think the debt limit will have big impact on our decision about whether to start or not start the balance sheet normalization process... It's one of the reasons why the reinvestment process, phasing that down, is going to happen very gradually, that we're not just going to stop abruptly because we want to make sure that the adjustments are small, the model is gentle, and don't have a big consequence for financial statements.So far I would say that the market reaction has been extraordinarily mild. As expectations have gone from relatively low probability that we're going to start this to a very high probability that we're going to start this relatively soon. And so that makes me more confident that when we start, it's not going to have a big consequence for financial statements." Finally, on whether Gary Cohn will replace Janet Yellen: "I don't want to evaluate the various candidates for the Federal Reserve, except to say that I think Gary is a reasonable candidate. He knows a lot about financial markets. He knows lots about the financial system. I don't think you have to have a PhD in Economics, which I have, to be a Chair of the Fed or Governor or a President of one of the Federal Reserve Banks."
The global rout resulting from tensions over the North Korean nuclear standoff continued on Friday as world stocks tumbled for the fourth day, on course for their worst week since November following a third day of escalating verbal exchanges between Trump and Kim, as European and Asian shares tumlbed, volatility spiked, and the selloff in US futures continued albeit at a more modest pace as the escalating war of words over North Korea drove investors on Friday to safe havens such as the yen, Swiss franc and gold. In addition to North Korea, attention will be closely focused on today's US CPI print, which could result in even more currency volatility, should it surprise significantly in either direction. "What has changed this time is that the scary threats and war of words between the U.S. and North Korea have intensified to the point that markets can't ignore it," said Shane Oliver, head of investment strategy at AMP Capital in Sydney. "Of course, it's all come at a time when share markets are due for a correction, so North Korea has provided a perfect trigger." All eyes remained on the sharp short squeeze in the VIX, which exploded more than 50% above 16 on Thursday from single digits the day before - the highest print since Trump's election victory - and extended gains on Friday rising nearly 5% to 16.80, after briefly topping 17, a potential "margin calling" nightmare for countless vol sellers over the past year. Thursday also saw the highest VIX volume day on record as 937K VIX futures traded across the curve. The Global Financial Stress Indicator surged positive after trading in negative territory since April. The global rout that sent the Nasdaq lower by 2% on Thursday, spread to China which saw the Shanghai Composite tumble by 1.6% to 3,208, its biggest drop this year, led by mining and resource stocks, with nearly 20 names halted limit down, after Chinese metals prices tumbled by 5%. The Chinese volatility index jumped by the most since January 2016 to its highest level in more than seven months. While there wasn't a specific catalyst for the rout, a driver for the sharp commodity selling was the announcement by the China Steel Industry Association which said the recent surge in steel futures was not due to market demand but misunderstanding by some institutions. Adding fuel to the fire was a Reuters report that the Shanghai Futures Exchange told its members it may raise margins on steel rebar contracts if market trade volume is too large. As a result, metals also led declines on the mainland CSI 300 Index: Xiamen Tungsten slides as much as 9.3%, most intraday since September; Jiangxi Copper falls as much as 8.3%; China Molybdenum slips as much as 7.7%; the Bloomberg China Steel Producers Valuation Peers Index tumbled 5.9%, with Nanjing Iron & Steel, Maanshan Iron & Steel, Angang Steel dropping at least 6.9%. "Chinese investors locked in profits on commodity shares following strong gains which had been driven by bets that capacity cuts would boost prices", said Helen Lau, Hong Kong-based analyst with Argonaut Securities. "Stock markets are in a risk-off mode due to escalating geopolitical risks, so recent outperformers would be the first to take a hit amid a selloff." In HK trading Aluminum Corp. of China tumbles as much as 7.4%, the biggest intraday drop since February 2016, while China Shenhua Energy dropped as much as 4.8%, among the worst performers on Hang Seng Index. Also hurting Chinese sentiment was the plunge in Tencent, with the Chinese tech giant dropping as much as 5% in Hong Kong, its biggest intraday decline in more than a month, following news of a Chinese probe into Tencent, Sina and Baidu for cyber-security law violations. Stocks of related tech companies were all lower with Sina down 3%, Weibo down 4.5%, and Baidu down 2.5%. Earlier in the session, the onshore Chinese yuan dropped as much as 0.43% vs USD to 6.7080, its biggest drop since Jan. 19, after the PBOC set the fixing at a weaker level than expected. As Bloomberg reported overnight, the PBOC strengthened fixing by 0.19% to 6.66420, compared with forecasts of 6.6477 from Commerzbank, 6.6552 from Mizuho Bank, 6.6559 from Scotiabank and 6.6549 from Nomura. At the same time, the offshore yuan dropped as much as 0.28% to 6.6853, most since June 26, although putting the drop in context, just one day earlier, the CNY rose to its strongest level since August 2016 on Thursday, prompting Bloomberg to call the Yuan the new "safe haven" currency. Elsewhere in Asia, MSCI's broadest index of Asia-Pacific shares outside Japan had skidded 1.55 percent, its biggest one-day loss since mid-December, to leave it down 2.5 percent for the week. Australia’s S&P/ASX 200 Index fell 1.2 percent at the close in Sydney. The Hang Seng Index in Hong Kong tumbled 2 percent and China’s Shanghai Composite Index was down 1.6 percent. The Japanese yen rose 0.2 percent to 108.96 per dollar, the strongest in more than 15 weeks. Japanese markets are closed for the Mountain Day public holiday. South Korea's KOSPI fell 1.8 percent to an 11-1/2-week low, but its losses for the week are a relatively modest 3.2 percent; volatility on the Kospi 200 surged as much as 27 percent. "Pretty remarkable, perhaps even extraordinary, considering," said fund manager BlueBay strategist Tim Ash. The Korean won also continued to skid, down 0.45 percent to 1,147.2, falling below its 200-day moving average for the first time in a month. European markets continued sliding into risk-off mode although at a slower pace; even so Europe's where regional indices were set for the worst week of losses this year as sentiment on ongoing fears about escalation between the US and North Korea. Euro zone volatility jumped to the highest since April, when France's election was rattling the region. Weakness has been seen across the board (Eurostoxx 600 -1.0%), however mining names have notably underperforming amid Chinese metal prices slumping by some 5% overnight. The iTraxx Crossover extended its recent widening, leading sentiment as hedges are placed into the weekend. European equity markets opened lower led by mining sector, as base metals sell off heavily in Asia after a report saying the Shanghai exchange may raise margins on steel rebar contracts, which was later confirmed. DAX futures dip to approach 200-DMA, financials under pressure after HSBC warns low-vol environment could hit 2H revenues. CHF and JPY marginally outperform in G-10, EMFX weaker against USD across the board. Core fixed income extends rally and bund curve flattens further, yet UST/bund spread widens 3bps as USTs lag amid focus on U.S. CPI data which may add to the recent dollar pains should inflation come in weaker than expected. U.S. treasury yields fell to their lowest in more than six weeks ahead of inflation data expected to show a pickup in price growth, which could boost the chances of a further rate hike this year, while the Fed’s Kaplan and Kashkari are due to speak. The dollar declined against the Japanese yen for a fourth day as North Korea tensions remained elevated. The yield on 10-year Treasuries fell one basis point to 2.19 percent, the lowest in more than six weeks. Germany’s 10-year yield decreased three basis points to 0.38 percent, the lowest in more than six weeks. Oil was modestly higher even though the IEA cuts its OPEC demand estimates for this year and next year by by 400bpd after revising down its demand estimates going back to 2015, rejecting OPEC's own assessment of rising demand growth for the near future. Aside from North Korea, inflation data is where the market is most sensitive to a surprise at the moment, even if yesterday's weak US PPI doesn't suggest an imminent rise. For the US CPI today, consensus expected core CPI inflation to rise +0.2%, and should finally snap its streak of four consecutive monthly misses which could be important. 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. New York Fed President William Dudley cautioned that it will “take some time” for inflation to reach the central bank’s 2 percent target, the latest official warning that price pressures remain muted. The Federal Reserve Bank Dallas President Fred Kaplan speaks this afternoon. Also today, Moody’s may publish a review of South Africa’s credit rating, two months after reducing its foreign- and local-currency assessments to one level above junk. JC Penney, Magna International and Telus are due to release results. July consumer price data is also due later. Bulletin Headline Summary From RanSquawk Geopolitical tensions continue to act as a driving force for markets amid the latest exchange between the US and NK This has seen downside in EU equities (Eurostoxx 50 -1.0%) and a FTQ in other assets Looking ahead, highlights include US CPI, Fed's Kashkari and Kaplan Market Snapshot S&P 500 futures down 0.1% to 2,434.25 STOXX Europe 600 down 1.0% to 372.26 DAX down 0.3% to 11,980 MSCI ASIA down 0.8% to 158.49 MSCI ASIA ex JAPAN down 1.5% to 515.81 Nikkei down 0.05% to 19,729.74 Topix down 0.04% to 1,617.25 Hang Seng Index down 2% to 26,883.51 Shanghai Composite down 1.6% to 3,208.54 Sensex down 1.1% to 31,193.00 Australia S&P/ASX 200 down 1.2% to 5,693.14 Kospi down 1.7% to 2,319.71 German 10Y yield fell 3.5 bps to 0.38% Euro down 0.1% to 1.1759 per US$ Brent Futures down 0.9% to $51.45/bbl US 10Y yields unchanged at 2.19% Italian 10Y yield rose 2.1 bps to 1.743% Spanish 10Y yield fell 0.6 bps to 1.452% Brent Futures down 0.4% to $51.70/bbl Gold spot up 0.1% to $1,287.31 U.S. Dollar Index up 0.04% to 93.44 Top Overnight News China Urges Restraint as Futures Slide; FOMC Voters to Speak After CPI Data; Snap Slammed Amid Facebook Pressure The escalating war of words between Trump and North Korean leader Kim Jong-Un sent Asian markets tumbling as the region braced for more provocations from his regime next week President Donald Trump stepped up his campaign of pressure on North Korea, warning the regime not to follow through with a missile test near Guam and promising massive response to any strike against the U.S. or its allies Treasury yields may climb from a six-week low if Friday’s U.S. consumer- price data merely meet expectations, as the market is on high- alert for evidence that inflation is heating up and supporting the Fed’s case for higher interest rates For all the talk that Chair Janet Yellen’s plan to shrink the Fed’s balance sheet will hurt Treasuries, U.S. mortgage bonds face a bigger test The International Energy Agency cut estimates for the amount of crude needed from OPEC this year and in 2018, after lowering its historical assessments of consumption in emerging nations including China and India All that stands between German Chancellor Angela Merkel and a fourth term is six weeks of campaigning Morgan Stanley added its voice to a growing chorus of skepticism surrounding debt valuations, with Pacific Investment Management Co. writing in a report released Wednesday that investors should pare relatively expensive assets like corporate bonds in favor of safer investments like Treasuries Credit Suisse Group AG is barring its traders from buying or selling certain Venezuelan securities and business as the political and economic crisis in the South American country intensifies Gold advanced to the highest in two months as the spike in tensions between the U.S. and North Korea fanned demand, with hedge fund billionaire Ray Dalio flagging rising risks, including “two confrontational, nationalistic, and militaristic leaders playing chicken with each other” President Donald Trump laid out a path for Senate Majority Leader Mitch McConnell to get back in his good graces: replace Obamacare, overhaul the U.S. tax code and find a way to pay for big infrastructure improvements RBA’s Lowe says next interest rate move likely up, but could be some time away; RBA prepared to intervene in A$ in ’extreme’ situations Snap, Blue Apron Fall Flat as the Incumbents Smash the Upstarts IEA Cuts Estimates for Crude Needed From OPEC This Year and Next Chinese Regulator Starts Probe Into Tencent, Weibo and Baidu Stolen 1MDB Funds Are Focus of U.S. Criminal Investigation Health Insurers Face Long Odds to Win Reprieve of Obamacare Tax U.S. Stocks Gain, Hong Kong Loses Weight in MSCI Indexes: SocGen FBI Says ISIS Used EBay to Send Cash to U.S.: WSJ Anbang Ownership Secrets Subject of U.S. Workers’ Complaint Hollywood Heads For Its Worst Summer Box Office in a Decade Asia stock markets were heavily pressured amid continued geopolitical tensions after further fighting talk between US and North Korea, which also saw US indices close negative for a 3rd consecutive day. The fresh goading came from both sides as US President Trump suggested his fire and fury comments maybe was not tough enough and warned North Korea to get its act together or it will be in trouble like few nations have ever been. This evoked a response from North Korea which vowed to mercilessly wipe out the provocateurs and stated the US will suffer a shameful defeat. As such, ASX 200 (-1.2%), KOSPI (-1.7%) Hang Seng (-2.0%) and Shanghai Comp (-1.7%) all traded with firm losses, while Nikkei 225 was shut due to public holiday. PBoC injected CNY 70bln in 7-day reverse repos and CNY 60bln in 14-day reverse repos, for a net weekly drain of CNY 30bln vs. CNY 40bln drain last week. Top Asian News War of Words Between Trump and Kim Has Asia Bracing for Conflict South Korean Banks Follow Won Lower Amid Rising Trump Rhetoric China Data Dump and Alternative Gauges Both Signal Steady Output Maker of India’s Aircraft Carrier Surges 22% on Trading Debut Biggest India Lender Slumps as Bad-Loan Surprise Hits Profit KKR Completes 26 Investments in China as of Aug. 1 Freeport Urged to Reinstate Workers to End Indonesian Strike India July Local Passenger Vehicle Sales Gain 15% Y/y to 298,997 BlackRock’s James Lenton Joins Fidelity as Trader in Hong Kong European indices are set for the worst week of losses this year as sentiment is weighed by the war of words between the US and North Korea. Weakness has been seen across the board (Eurostoxx 50 -1.0%), however mining names have notably underperforming amid Chinese metal prices slumping by some 5% overnight. EGBs supported by flight to quality with Bunds printing fresh session highs, while there had been reports of 5k lots tripping stops at 164.50. Peripherals underperform this morning, led by BTPs, subsequently the GER-ITA spread has widened to 162bps Top European News Morgan Stanley Makes ‘Multi-Year Call’ For Strong Euro on Reform Europe Miners Slump as Metals Fall on China Steel Body’s Warning Tullow Oil, Genel Energy Drop; GMP Cuts Both Stocks to Reduce Old Mutual First-Half Profit Climbs as Insurer’s Split Looms Merkel’s Bloc Holds All the Coalition Options in Latest Poll Buy BNP Paribas, Credit Suisse; Sell Barclays, Goldman Says Nordea Chairman Hints HQ Review Isn’t Limited to the Nordics In currencies, safe-haven support for the currency has continued as USD/JPY made a brief break below 109.00 overnight. Although, with the war of words showing no signs of stopping, JPY could make a push back to the April low at 108.11. So far, the pair have traded in a narrow range with investor focus for the USD shifting to the US inflation figures due out later in the session. AUD softened in Asian trade as commodities prices slipped. Crude prices fell over 0.5%, despite Saudi Arabia and Iraq's announcement to ensure that all major producers comply to the OPEC production cut, while Saudi also left the door open to deeper cuts. Additionally, Chinese iron ore prices fell some 5%, further weighed on the currency, subsequently pushing AUD to the mid 0.78. In commodities, China state run newspaper editorial comments state China will remain neutral if North Korea launches an attack on US, but if US strikes first and tries to overthrow North Korean government, China will stop them. Saudi Arabia Energy Minister Al-Falih stated the possibility for continuation of output cuts is on the table and if the size of cuts need to be adjusted, this will be examined and subject to approval by 24 countries. North Korea vows to mercilessly wipe out the provocateurs, says US will suffer a shameful defeat, according to North Korean state media. IEA raises 2017 global oil demand forecast to 1.5mln bpd vs. 1.4mln bpd, global oil supply rose by 520k, while OPEC compliance fell to 75%. Looking at the day ahead, the main focus will be its inflation stats for July, with expectations at 0.2% mom (for core) and 1.7% yoy. Onto other events, the Fed’s Kaplan and Fed’s Kashkari will also speak today. US Event calendar 8:30am: US CPI MoM, est. 0.2%, prior 0.0%; CPI Ex Food and Energy MoM, est. 0.2%, prior 0.1% US CPI YoY, est. 1.8%, prior 1.6%; CPI Ex Food and Energy YoY, est. 1.7%, prior 1.7% Real Avg Weekly Earnings YoY, prior 1.09%; Real Avg Hourly Earning YoY, prior 0.8% DB's Jim Reid concludes the overnight wrap I'm hoping I'll be on this planet for as close to 36,525 days as I can get and I'm also hoping tomorrow will be the only day of that stint that I'm stupid enough to be picking up a brand new car with no miles on it. So in some ways it's exciting and in some way it’s very annoying as I vowed never to waste money on a new car. The twins have forced the issue and I'll be figuratively setting light to wads of bank notes as I roll out the forecourt. I'm driving 80 miles to Poole to collect it and I'm setting off very early as I have to get back to make sure everything is ready at home for the new arrival. The excitement is building, I'm very nervous and hopes and dreams come in abundance with such a fresh start. Yes Liverpool kick off their season at lunchtime tomorrow and I need to make sure I'm back in time to watch it. Wish me luck. The markets and more importantly the world is wishing for a bit of luck at the moment and a peaceful solution to the North Korean spat. The nuclear fallout from this week's high stakes geopolitical jaw boning couldn't completely unsettle markets on Wednesday but Thursday was a different story. We finally broke the 15 day run of sub 0.3% closes in either direction with the S&P 500 -1.45% after a day where the news we covered yesterday morning concerning North Korea's threat to attack Guam by mid-August increasingly spooked global investors as the day progressed. Mr Trump then raised the temperature another notch late in the US session last night, saying his ‘fire and fury” comment earlier in the week “wasn’t tough enough” and that “things will happen to them (NK) like they never thought possible..” and has “declined” to rule out a pre-emptive strike on NK, noting “we’ll see what happens”, all of which helped the US close at the lows for the session and shatter the recent low vol environment. Given the previous record low vol run was 10 days in 1966, if I do live to be 100 I'm statistically unlikely to witness anything like what we saw in the 15 days before yesterday. The S&P 500 had its worse day since mid-May this year when it fell 1.8%. Over at the Vix, the fear gauge broadly traded up most of the day and surged 44% higher to close at 16.04, which is actually the first day the index closed above 16 in CY2017. Across the pond, the Vstoxx was up 26% to 18.9, the highest level since April when Europe had heightened political risks in the run up to the French elections. Investors pushed safe haven assets higher again, with gold up 0.7% to a 9 week high, the Swiss franc up 0.1% (was +1.1% the day before) and JPY/USD +0.8% higher. Over in European government bonds, changes in core yields were more tempered following the ~5bp fall the day before. Bunds fell 1bp (2Y: unch; 10Y: -1bps), with Gilts down 3bps (2Y: +0.3bp; 10Y: -3bps) at the long end of the curve, while French OATs were broadly flat (2Y: unch; 10Y: -0.5bp). Peripheral bond yields were up slightly across the curve, with Italian BTPs (2Y: +1bp; 10Y: +2bps) and Portuguese yields (2Y: -0.5bp; 10Y: +2bps) not sure whether they were a flight to quality instrument or a high beta asset. Across the pond, the UST10Y fell 5bps yesterday (2Y -1bp) but is fairly flat this morning. In Asia, markets have continued to fall. The Kospi recovered a little to be 1.6% down as we type, the Won/USD dipping another 0.2%. The Hang Seng fell for the 3rd consecutive day (-1.9%), with Chinese bourses down 1.1% to 1.6%. We also got a glimpse of what China might be thinking, with the Global times (English paper under the People's Daily) writing that China should make clear that: i) it will stay neutral if the US retaliates after NK launches missile that threaten American soil, but ii) if countries try to overthrow the NK regime, China will prevent them from doing so. Moving on, if we can pull out attention away from the nuclear threat, inflation data is probably where the market is most sensitive to a surprise at the moment, even if yesterday's weak US PPI doesn't suggest an imminent rise. For the US CPI today, our economists expect core CPI inflation (+0.2% vs. +0.1%) should finally snap its streak of four consecutive monthly misses which could be important. They 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. Following on the theme of inflation, DB’s Luzzetti examined the impact of recent US dollar depreciation on the inflation outlook. Based on their own inflation models and analysis cited by Fed officials, they think that recent dollar weakness – assuming that it does not reverse – could lift year-over-year core PCE inflation by about 0.2pps by mid-2018 and 0.1pps by mid-2019. More details here. Turning to Europe, the flip-side of recent currency moves is discussed by DB’s Mark Wall who has written on how euro appreciation will be balanced against growth momentum in determining the ECB’s exit from QE. He argue that all else unchanged the euro’s appreciation since June could reduce the ECB staff core inflation forecast for 2019 from 1.7% yoy to 1.5% yoy. More details here Returning to the equity market sell-off in a little more depth, US bourses all weakened yesterday, with the S&P (-1.5%), the Dow (-0.9%) and the Nasdaq (-2.1%) sharply lower. Within the S&P, only the utilities sector was up (+0.3%) versus larger losses elsewhere (IT -2.2%; Financials -1.8%). European markets also fell across the board, the Stoxx 600 was down 1% to the lowest level since March with all sectors in the red. Across the region the FTSE 100 (-1.4%), the DAX (-1.2%), Italian FTSE MIB (-0.8%) and CAC (-0.6%) were all lower. Currencies were mixed but little changed, the USD dollar index dipped 0.2% post the lower than expected PPI data. The Euro continued to edge ahead against the USD and Sterling, up 0.1% and 0.3% respectively, while the Sterling/USD was down 0.2%. In commodities, WTI oil fell 2%, despite OPEC raising its demand forecast for oil and two of the largest OPEC producers (Saudi Arabia & Iraq) agreeing to strengthen their commitments to production cuts. Notably, Iraq's recent compliance to production targets is not exactly great (29% in July). Elsewhere, precious metals were modestly up (Gold +0.7%; Silver +1%) and aluminium continues to gain (Copper -0.3%; Aluminium +0.9%). Agricultural commodities were broadly lower, with corn, wheat and cotton all down ~4%, while soybeans, coffee and sugar were down ~3%. This follows a USDA report which suggest US farmers will produce more corn and soybeans than analyst forecasts. Away from the markets, Trump has made his disappointment with Senate majority leader McConnell well known, tweeting “can you believe that McConnell, who has screamed repeal & replace (Obamacare) for 7 years, couldn’t get it done…” and “…Mitch, get back to work…”. However, Trump was more conciliatory on special counsel Mueller, saying he “hasn’t given it any thought about firing Mueller” and that “I’m not dismissing anybody”. Elsewhere, NY Fed president Dudley cautioned that it will "take some time" for inflation to reach the Fed's 2% target, which is consistent with comments made by his colleagues earlier in the week. Before we take a look at today’s calendar, we wrap up with other data releases from yesterday. In the US, the July PPI report was softer than expected. The core measure (ex-food & energy aggregate) was -0.1% mom (vs. 0.2% expected) and 1.8% yoy (vs. 2.1% expected). The PPI for healthcare services, which is closely correlated with that within the PCE deflator, rose a steady 1.4% yoy. Elsewhere, claims data were mixed, with initial jobless claims up 3k to 244k (vs. 240k expected) and continuing claims at 1,951k (vs. 1,960k expected). In Europe,France’s June industrial production (IP) was modestly lower than expectations at -1.1% mom (vs. -0.6% expected, 1.9% previous) and 2.6% yoy (vs. 3.1% expected), while manufacturing production was slightly better at -0.9% mom (vs. -1% expected) and 3.3% yoy (vs. 3.2% expected), which is just a bit weaker than Markit PMI readings had foreshadowed. Over in UK, IP for June was higher than expectations at 0.5% mom (vs. 0.1% expected) and 0.3% yoy (vs. -0.1% expected), while June manufacturing production was flat and in line, at 0% mom and 0.6% yoy. The UK’s trade deficit also unexpectedly widened in June as exports fell but imports rose. Looking at the day ahead, the final CPI figures for Germany (1.5% yoy expected), France (0.8% yoy expected) and Italy (1.2% yoy expected) will be released. Over in the US, the main focus will be its inflation stats for July, with expectations at 0.2% mom (for core) and 1.7% yoy. Onto other events, the Fed’s Kaplan and Fed’s Kashkari will also speak today.
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
Janet Yellen's Monetary Policy Just Eased 50 bps and She Can’t Be Happy - by Michael Carino - Greenwich Endeavors
Over the last two months, the Fed has tried to continue to communicate that they plan on raising rates up to at least 3% and reduce their balance sheet by trillions. They just raised the Fed Funds rate by 25 bps to 1.25%. However, long term rates rallied by 50 bps! And the short end of the interest rate curve is priced with yields on top of the Fed Funds rate. This implies that either the Fed is lying and does not plan to raise rates again (or even lower rates), or something is broken in the bond market. After a decade of manipulation in rates by central banks globally, bond markets are priced at some of the richest conditions ever. There could not be a greater disconnect with actual economic conditions. Globally, there is no crisis on the horizon and sovereign risks could not be lower. GDP is tracking close to above average 3% and inflation right on 2%. Spare capacity near or at a cycle low, increasing the probability that inflation is going to run too hot going forward. So why did long term rates recently rally 50 bps? Such a large move surely comes on the heels of a financial crisis or recession. No, this move comes from the excessive conditions built over the last decade in the bond market. When such extremely disconnected conditions exist, the probability of a financial crisis from an unwind of these conditions is extremely high. The latest move to lower rates, even as the Fed is trying to normalize rates is due to the manipulation of bond markets by a consortium of large balance sheets that trade Treasuries in high volume during low volume periods. This is the strategy pursued in 2006 and 2007 and led to flattening of yield curve and diminished volatility as Fed raised rates. These high volume strategies take advantage of a soft Fed that telegraphs every step and stretches out their policy moves over long periods of time. This leads to high volume strategies believing the Fed issued a put on rates and therefore excessive risks can be taken to profit in the short run. Mohamed A. El-Erian, bond market veteran and specialist wrote today that the Fed should continue to raise rates “and that policy makers should take seriously the growing risk of future financial instability, especially in the absence of a carful normalization”. Other Fed officials, including the Fed’s vice chairman, William Dudley has also been sounding the alarms of a bond market out of control and resulting future financial instability. The bond market has turned into a game of no limit poker played by the biggest balance sheets and finally the alarm bells are getting rung. When the Fed tightens, rates usually rise as markets prepare and adjust for the tightening cycle and resulting risks. Real rates can adjust to over 300 bps. Real rates today are close to 0%. Unlevered bond market losses can hit a staggering 50% if rates normalize. When rates are more normalized and the Fed raises rates, the yield curve usually flattens as short term rates converge with long term rates. However, this time, just like in 2008, conditions have been so easy, traders use high volume strategies to squeeze market participants hedging or holding off on future purchases and make yields actually rally lower. This leads to significant future financial instability with substantial volatility and potential impacts in the real economy. The Fed wants to avoid the same mistakes but at the same time does not want to be held responsible if history repeats with a financial crisis. They will try to talk rates to normalization and Fed officials are currently trying to do so. But with each speech, market starts to move in the direction of normalization only to be met with high volumes pushing market to even lower yields. The Fed has to get real and stop this habitually bad behavior. They need to increase volatility in the bond market and let the volatility regulate bad behavior. The Fed is too transparent and traders are using a lower volume period – summer months – and lack of economic releases to push markets around like poker players do. These traders are using the Fed’s proven misguided monetary policy (which is a repeat of 2006-2007 and we know how that ended up) as a perceived put option on rates and exercising it with a high volume long biased trading strategy. Janet Yellen speech today should acknowledges how broken the bond market is and disconnected from their policy path or any semblance of normalization. She, too, will try to talk a good game. However, the market is so embedded with large traders with gargantuan balance sheets too large to reposition for higher rates without hurting their positions, the manipulation of rates will continue. To avoid a significant self-made financial crisis, Yellen needs to walk the walk as well. Yes, a 50 bp hike will stop this behavior. Also, bringing forward sales from their balance sheet, or let the balance sheet run off faster would end the manipulative behavior in the bond market that monetary policy has incubated. This would also be a savvy way to take advantage of these lower rates instead of getting front-run by these markets. The sooner the bond market starts to truly normalize, the less severe the market impact will be from the overvalued global bond market normalization process. So to avoid the same policy mistakes of the last tightening cycle and creating a financial and economic crisis, Yellen should be a little less predictable, knock out that perceived put option on higher rates and let increased volatility regulate the markets keeping positions smaller and extreme risk taking at bay. Today’s speech will be a step in the right direction. by Michael Carino, 6/27/17 Michael Carino is the CEO of Greenwich Endeavors, a financial service firm, and has been a fund manager and owner for more than 20 years. He has positions that benefit from a normalized bond market and higher yields. Do you?
В руководстве Федеральной резервной системы рассматривают возможность использования отрицательных процентных ставок, в случае если американская экономика вновь столкнется с серьезным кризисом.