Market Recap

Same same: stock markets down, AUD down, JPY up.

However the large fall in AUD deserves some attention, particularly on a day when iron or futures in Singapore were up 1% to the highest level of the year. It appears that speculators are still taking positions against the currency, perhaps in anticipation of some new insight from the Monetary Policy Statement (MPS) that’s due out overnight.

In the statement following Tuesday’s Reserve Bank of Australia (RBA) meeting, the Bank said that the outook for policy basically depended on the labor market. It said that  "further improvement in the labour market was likely to be needed for inflation to be consistent with the target. Given this assessment, the Board will be paying close attention to developments in the labour market at its upcoming meetings." Perhaps the speculators are expecting some clarification of this point. In particular, the phrase “further improvement” was new and probably significant – what measure of the labor market and how much improvement is necessary? I wonder if we will get a definitive answer from the MPS. If we do, I doubt whether it will confirm the market’s fears. I think the AUD has gone down too far too fast and is due for some reversal, at least in the short term.

Elsewhere, GBP continued to fall as it looks like the talks between PM May and the Labour Party are close to being terminated. Furthermore, there is talk that PM May will meet with some backbench members of her party next week to discuss the timing of her departure. Since most of her likely replacements are even more hard-core “Leave” supporters than she is, this raises the possibility of a “hard Brexit,” i.e. crashing out with no agreement at all. PM May said she’ll try next week to pass her much-maligned withdrawal agreement so that Britain won’t have to take part in the EU elections that begin 23 May. Fourth time lucky? Don’t bet on it. GBP negative


Today’s market

Today’s US producer price index (PPI) is a second-tier indicator, particularly in comparison with tomorrow’s CPI. But still, it’s expected to be a sign that upstream price pressures aren’t slowing, which should support the Fed’s policy of “patience” rather than the market’s assumption of rate cuts. That ought to be supportive for the dollar.

Initial jobless claims were up sharply over the last two weeks but are expected to moderate somewhat, providing more evidence of the strong job market in the US. Also USD-supportive.

Fed Chair Powell give brief opening remarks at a Fed conference on community development. He probably won’t make any reference to the outlook for monetary policy, but you never know. Well, you never know, but sometimes you have a good idea.

The US trade balance is expected to show a deficit similar to that of the previous month. Still, it’s off the recent record wide level of December and in fact narrower than the six-month moving average (-$53.9bn), so this does show a modest improvement. USD-positive if indeed anyone notices.

The Canadian trade deficit is also expected to narrow a bit, but that’s probably just getting back to normal after various shut-downs caused it to widen dramatically late last year. The market consensus is exactly in line with the six-month moving average, meaning no real change – CAD-neutral

Overnight, Japan announces its labor cash earnings. Is it possible to have a disgraced economic indicator? If so, this is one, after the agency that compiles the data was found to be doing so incorrectly. Furthermore, the indicator has been distorted by a change in the sample of businesses being surveyed; this has caused it to plunge on a yoy basis, and will probably keep it in negative territory on this basis for a full year, at which point the sample will change again and it’ll be distorted in another way. In fact while the headline figure shows wages falling on a yoy basis, the sample based on the same businesses showed modest growth of +0.5% yoy last month and +0.6% yoy the previous month, further adding to the uselessness of this indicator.

So why do I even write about it? Because in theory it should be an important indicator, like average hourly earnings in the US or average weekly wages in Britain. But since Japanese monetary policy is on hold indefinitely regardless, probably nothing matters anyway. JPY-neutral


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Marshall Gittler

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