The IMF/G20 finance minister meeting yielded nothing of import over the weekend – not a tremendous surprise for market participants, as global markets try to decide whether there are more piles of fiat currencies to burn or whether enough is enough for now.
Our favorite quote of the day come from a Bloomberg article about the failure of the G20 finance ministers to come up with a resolution to the currency disputes: “Finance ministers and central bankers pledged cooperation, yet did little to show they would alter their ways beyond agreeing to let the IMF study the matter”. Nothing like agreeing to study something to show commitment! Another part of the article talks about China being accused of undervaluing its currency while the developed countries were accused of flooding the emerging markets with capital. Both sides have a good point. Also, the latter accusation shows how the “decoupling” theme is revealed as a self-fulfilling prophecy because how can EM economies not grow when they are bursting at the seams with new funds and the credit booms they trigger?
This current boon to growth is also a risk, however, a risk that will be made evident if the capital flows stop or even reverse. As we have fretted endlessly over recent weeks, however, we ask again what the catalyst would be for such a change of heart by this market? We’re getting a bit of uncertainty in the charts in key instruments like AUDUSD and Gold, but as long as the status quo is maintained, the pressure mounts and mounts on the USD, with only extremely lopsided market positioning the salient risk. And the more lopsided the market becomes, the more violent the correction potential – so hang on to your seats, everyone, as we’ve already gone far and there is plenty of energy pent up in this market if the current paradigm is disappointed or refuted at some point.
Chart: EURUSD
EURUSD showing a bit of uncertainty even as it recently vaulted beyond the 55-week moving average and the 0.618 Fibo retracement area around 1.3900. This could just be a pause as the market contemplate whether it wants to take the pair above the 1.40 level or signs of larger consolidation. Note that momentum has come off somewhat after the last two days of “long-legged doji” candlesticks – classic markers for uncertainty. Note also that EURUSD rallies and sell-offs often pause close to major big figures (1.50 on the upside last time around and just below 1.20 on the downside.)
EURUSD showing a bit of uncertainty even as it recently vaulted beyond the 55-week moving average and the 0.618 Fibo retracement area around 1.3900. This could just be a pause as the market contemplate whether it wants to take the pair above the 1.40 level or signs of larger consolidation. Note that momentum has come off somewhat after the last two days of “long-legged doji” candlesticks – classic markers for uncertainty. Note also that EURUSD rallies and sell-offs often pause close to major big figures (1.50 on the upside last time around and just below 1.20 on the downside.)
Looking ahead
Watch out for the parade of Central Bank officials speaking from Washington this week, though most of the focus will be on tomorrow’s FOMC minutes release, which might round out the market’s knowledge of how heavily the Fed is leaning to move on QE in November and the degree of dissent within the FOMC on whether QE is warranted at all. Remember that the composition of the FOMC changes rather dramatically at the first of the year. (We can’t help but wonder if some of the dissenting voices get loud as the more clever dissenters (are there any?) realize that Bernanke’s policies are doomed and they might smell political opportunity…)
Watch out for the parade of Central Bank officials speaking from Washington this week, though most of the focus will be on tomorrow’s FOMC minutes release, which might round out the market’s knowledge of how heavily the Fed is leaning to move on QE in November and the degree of dissent within the FOMC on whether QE is warranted at all. Remember that the composition of the FOMC changes rather dramatically at the first of the year. (We can’t help but wonder if some of the dissenting voices get loud as the more clever dissenters (are there any?) realize that Bernanke’s policies are doomed and they might smell political opportunity…)
Below we look at a few data highlights this week. Note that this is by no means a complete calendar of upcoming events. In particular we have left out a number of key CB speakers out this week, so watch out for those on a day to day basis:
Tuesday
- UK Sep. RICS House Price Balance – this is the leading survey on UK housing and suggests very rapidly falling prices lately
Australia NAB Business Confidence/Conditions – was coming off in recent months from very high levels, but the August Confidence number was quite strong at 11. - UK Sep. CPI/RPI – the BoE really needs a solidly sub-3.0% headline CPI figure and core CPI well below 2.5% (expected are 3.1%/2.6%) to get the numbers headed in the right direction relative to the BoE’s dovish inflation forecast.
- UK Aug. Trade Balance – last month’s deficit was a modern record – how can the GBP escape becoming a poster child for further devaluation in this current environment if risk appetite stays up and we get another bad figure?
- US FOMC Minutes – a bit more insight into the internal FOMC debate – and very critical for the themes this market is currently trading
Wednesday
- Canada Aug. New Housing Price Index – tick-tock on the Canadian version of the housing bubble…this will offer an interesting data point.
Thursday
- New Zealand Sep. REINZ House Price Index/House Sales – there’s a stale bubble in NZ housing as well. Prices have flattened out, but not yet turned down.
- New Zealand Aug. Retail Sales - retail sales have leveled out in recent months
- Canada Aug. International Merchandise Trade – a new record large deficit in July and no prospect for improvement should serve as a brake on any further CAD appreciation
- US Aug. Trade Balance – Jul. finally saw a sharp improvement that may be a result of a slowing of inventory building and weaker domestic demand.
- US Sep. PPI – consensus expectations are for a modest rise and commodity input prices are up sharply of late. The core PPI is well off the lows of the cycle (1.5% YoY is consensus)
- US Weekly Initial Jobless Claims – the trend is definitely going the right way, but we need this well below 400k a week and possibly 350k to really see an improvement in the US job market.
Friday
- Canada Aug. Manufacturing Sales – signs of a decline developing as inventory restocking mini-boom may be behind us.
- US Sep. CPI – CPI releases are critical now that the Fed decided to single out low inflation as a key policy concern with the last monetary policy statement.
- US Sep. Retail Sales - The US consumer hasn’t completely gone on strike yet – sales have been slow, but no clear signs of a decline just yet – though the last time around, clear declines in end consumption were not evident until mid-2008 even though the recession began in late 2007.
- US Oct. Empire Manufacturing - the first of the major regional manufacturing PMI
- US Oct. Preliminary University of Michigan Confidence - confidence has clearly been declining again lately.
Economic Data Highlights
- Norway Sep. CPI out at +0.6% MoM and +1.7% YoY vs. +0.8%/+1.9% expected, respectively and vs. +1.9% in Aug.
- Norway Sep. Underlying CPI out at +0.7% MoM and +0.9% YoY vs. +0.9%/+1.1% expected, respectively and vs. +1.4% YoY in Aug.
Upcoming Economic Calendar Highlights
- EuroZone ECB’s Trichet to Speak (1600)
- US Fed’s Yellen to Speak (1845)
- UK Sep. BRC Retail Sales Monitor (2301)
- UK Sep. RICS House Price Balance (2301)
- Australia Sep. NAB Business Conditions/Confidence (0030)
- Japan Sep. Consumer Confidence (0500)
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