Refocusing on the Data
Markets go through periods of confusion and comfort but ultimately, the data is what tells the story and that's what will answer all the questions that have been plaguing markets. The yen was the top performer and the New Zealand dollar lagged after a soft dairy auction and poor inflation figures overnight. Japanese machine tool orders and a speech from the Fed's Rosengren are due later. A new Video Analysis on existing and possible trades has been posted here.
Central banks be hard pressed to stimulate economies in the foreseeable future as the struggle with the zero bound and a lack of ammunition. Comments – including Wednesday's FOMC Minutes – will continue to drive volatility but at some distant future point, rhetoric will trend towards background noise.
Economic data won't. The market doesn't yet have a strong sense of how growth in developed economies will unfold this year. The current conditions of the German ZEW sentiment survey fell to 52.3 from 59.7 as the entire survey deteriorated. It's not a big surprise given the declines in equity markets but if there is no near-term recovery, then it will spill into the broader economy.
In the UK, it's abundantly clear that Carney misread the inflation picture six months ago. The CPI fell 0.8% m/m and core inflation rose just 1.2% y/y compared to 1.3% expected. How much Brexit questions are weighing are a matter of opinion but ultimately the economic data will decide.
In the United States, the strong dollar continues to sap manufacturing with the Feb Empire Fed at -16.6 compared to -10.5 expected.
The Bank of Canada believes it will be on the other side of the equation and Dec manufacturing sales rose 1.2% on the heels of a strong export report. The worrisome detail was that new orders were down 2.1% so the optimism might be misplaced, especially after seeing the plunge in Chinese trade.
Japan is desperate to bet on a weak yen as a panacea with middling results. The latest data will come in the form of the January final machine tool orders report but the prior was down 17.2% so the bar is very low.
The Fed remains optimistic and will be the focus of the day ahead with the Minutes due Wednesday. Beforehand, the Fed's Rosengren will deliver a speech at 0000 GMT. Earlier, the Fed's Harker said a stabilization in the dollar was a key precondition for a hike. Kashkari said he still expects gradual hikes but financial market developments will be an important input at the March FOMC.
|Federal Reserve Bank of Boston President Rosengren Speech|
|Feb 17 0:00|
|Feb 17 19:00|
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