Harvey to Cloud Outlook

Hurricane Harvey went from a tropical storm to what will likely be one of the most damaging storms in history. The rains are expected to last through Wednesday and the scenes in Texas already point to a massive calamity that will cloud forecasts for many quarters. The euro was the top performer last week while the New Zealand dollar lagged. CFTC positioning showed specs making bigger bets on the euro against the pound.

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Harvey was a Category 2 storm when markets closed Friday but grew to a rare Category 4 storm when it first made landfall a few hours later. After pounding southwest Texas the system then went back out to sea and is now working its way up the coast to Houston where scenes of incredible flooding are already underway.

It's far too premature to assess the scope of the damage but much of the oil refining in the area is offline and may stay that way all week. The result will be a squeeze on gasoline prices. Oil is a more-tricky trade because imports are cut off. The kneejerk reaction when markets open may be to bid up prices.

Economically we suspect the storm will surpass the damage from Sandy and may even rival Katrina. Those storms skewed growth lower immediately but led to stronger GDP during the rebuilding. The impossible task is knowing just how much is related to the storm and how much was unrelated. That uncertainty will be another reason for the Fed to hold off hiking in December and maybe beyond.

Other weekend news included some tidbits from Jackson Hole. Kuroda warned GDP won't continue at 4%, which isn't a surprise to anyone.

CFTC Commitments of Traders

EUR +88K vs +79K prior GBP -46K vs -32K prior JPY -74K vs -77K prior CHF -2K vs -1K prior CAD +51K vs +51K prior AUD +60K vs +60K prior NZD +22K vs +25K prior

The euro longs remain near the most extreme levels since 2011 while specs are increasingly convinced that Brexit is going to hit harder than thought a few months ago.