Sept 18, 2016 - Weekly Macro Outlook W38

Markets opened in rather negative mood after the sell-off in US equities at the end of the previous week but cautious optimism returned after dovish comments of Fed’s Brainard. The main event was US CPI with a big positive surprise the BoE and SNB rate decisions were non-events. We continue this week with the Central banks. Wednesday BoJ, Fed and also RBNZ…

Previous MONDAY we saw a moderate reversal in equities after the Rosenberg caused sell-off as another Fed speaker, Brainard this time, had some very dovish comments… No change in EURUSD.The only thing we should take from these two is the fact that also inside the Fed there are different opinions. Also the DOA WASDE report was due and the expected revision of the Corn yields was less significant as expected, the Wheat global stocks however fell due to weak European harvest. Hedge funds are shorting Wheat heavily, so a short covering could cause rally in the near term. TUESDAY the Chinese Industrial production, Fixed assetsand Retails Sales all came out better than expected. If this is the sign of stabilising Chinese economy then the PBOC may start even think about a rate cut… however the real estate bubble will be a significant hurdle. Later that day the UK inflation put some pressure on the pound, worth to note home prices still grew at a pace of 8.3% y/y but the growth is slowing significantly. The EZ and German ZEW sentiment came worse than expected but little changed compared to the previous readings. The New Zealand Current Account went into deficit more than expected and put pressure on the kiwi. WEDNESDAY Average earnings figures in UK were better than estimated but still declined vs previous, however Jobless claimswent up while revised down the fall of claim number from last months. We couldn’t see the expected rebound in oil stocks as crude inventories fell further. Late night the New Zealand GDPq/q came worse than expected but the country economy is growing at incredible pace 3.6% year on year. THURSDAYwe started with mixed Aussie employment data, while employment change went into negative as a big surprise, the unemployment rate declined to 5.7%. The AUDUSDdidn’t reacted too much. In the morning the SNB rate decision and statement didn’t bring anything notable and the same we can say about the BoE. In the afternoon the US data flow came out worse than expected but after the EURUSDspiked up to 1.1280 the traders probably realised that it wasn’t actually that bad as most of the indicators were actually improving compared to last release (Core Retail Sales, PPI, Core PPI, Current account and Philly Fed and Empire State Manuf. Index…). What should cause concern was the Capacity utilisation, which declined… and as Fisher said this is a kind of key data which on the other hand the Fed can’t influence, this could be the next excuse why not to hike in September. FRIDAY supposed to be a quiet day even the US inflation figures had to be released. However the 0.2% increase CPI and 0.3% in Core CPI was a big surprise and the dollar started a steady appreciation with EURUSD down 100 pips EOD. The outcome from EU summit added weight on the EUR. Renzi rejected to hold a joint press conference with Merkel and Holland. As he explained from his point of view there was no progress in the migrant and austerity questions and if anything else is presented, its just “a flight of fantasy”…

The coming week will be everything about the BoJ and Fed but some events may cause tradable moves. One of them is the series of housing data from US. Be prepared however for a light liquidity and hence a little more short term moves. It will be hard to trade these so be careful…

MONDAY

The National Association of Home Builderswill release the results of their survey with the index of current and future single-home sales. They survey almost thousand homebuilders in the US monthly and therefore it makes a leading housing market indicator. Above 50 means good conditions in the sector. During 2009 it fell as low as 9 and during the previous boom high was at 72 index points.

TUESDAY

The RBA Monetary meeting minutes and Home price index (last Q unexpectedly fell into negative) will be AUD movers. At the first half of European session some light weight data from Europe are not expected to move the market. Building permits and Housing starts will take most of the spotlight in the afternoon. The first one is in a downtrend and far away from the levels of the last boom, here we need a positive surprise to give some additional boost to the USD. Again this is a leading indicator of the sector and gives a hint about the future building activity. The Housing starts is rather a medium term leading indicator of the economy due to activation of wide variety of jobs. In the evening the GDT price index will be watched by NZD traders and the API Crude stocks can prepare for CAD traders some excitement.

WEDNESDAY

We have three rate decisions this day, starting with BoJ. Before BoJ however the Australian Treasury will release its Mid-year Economic and Fiscal outlook. And even the BoJ will give the main tone in the Asian session, especially for Asian and Australian Currencies, this broad analyses will give us the idea, how the aussie government assess the economy and its own policy. The long awaited BoJ rate decision will take place before the Fed and this caused some speculations about the coordination of these two central banks. However if the BoJ wants to weaken the yen, they need to use Big Guns. We prepared a separate story on this with more details – link here. The following hours will be rather sleepy as everybody will be waiting for the Fed, but don’t forget that the EIAwill release Crude oil inventories in the afternoon. As there was a huge decline 2 weeks ago, the question if there will be a significant correction is still alive. The speculations whether the FED will hike or not are skewed towards the no camp. From our point of view however, even the US economy is not in a perfect shape, there are no economic obstacles to hike the rate if we look at the targets of the Fed, Employment is close to its maximum and Core Inflation is well above 2 percent at 2.3% (although Core PCE is Fed inflation indicator). We have to keep in mind that it is also a political decision and the Fed up to now never hiked in the election year. Please check our detailed piece on FOMC – link here. The RBNZ will release his statement and rate decision later in the evening. Well, they have a huge problem over there. The economy is growing 3.6% y/y, capacity utilization at 92%, Household debt to income ratio at all time high but core inflation at only 0.5% and housing market in bubble which is the key obstacle to cut. Anyway the central bank alone can’t solve such a problem and the politicians need to do their job finally by creating longer-term sustainable housing market rules.

THURSDAY

We can call it “The Day After…” with most probably a hangover kind of mood. The afternoon could be important with Draghi speakingat European Systematic Risk Board. We have also Jobless claims and Existing home sales from the US in the afternoon but after the FOMC likely the reaction will be muted.

FRIDAY

It will be a PMI day starting with Flash manufacturing PMI from Japan and Chinese MNI Business sentiment which could be a good leading indicator prior the official PMIs. At the beginning of the European session there will be released the French, German and Eurozone PMIs. We will end the week with Canadian inflation and Retail sales, both sets of data are expected to increase.

DISCLAIMER: This material was created for informational purposes only and represents the Land of Trading team’s view of the past and current economic and capital market environment. It is not an investment advice and should not be viewed that way at all, and the creators of this material cannot be held liable for any potential losses resulting from trading, where despite this disclaimer someone would consider this material as an investment advice.

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