Trading with point and figure

the last 24 hours
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- ECB, Riskbank & Fed speak in focus on data light day; politics and
speculation on Fed Fischer successor to accompany focus on Hurricane Irma; US
speculation jobless claims, Oz Retail Sales and German Production to
be digested; France and Spain to sell debt

- Fischer resignation, US Democrats deal on debt ceiling and Harvey funding
a reminder that backdrop far more fluid than market (in)action suggests

- ECB: focus on GFP and CPI forecast revision, likely to stress need for
greater policy flexibility going forward, EUR and bond scarcity comments
likely to attract much attention

- Sweden Riksbank: no change to policy expected, and not expected to hint
at exit from extreme policy ease, despite stronger recent data

- Charts: EUR/SEK, CAD IMM future Net position, WTI Oil futures

- Tables: Fed, ECB, BoC and Riksbank rate probabilities by meeting

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** EVENTS PREVIEW **
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Central banks are once again to the fore today in terms of scheduled data and events, with the ECB taking pride of place over Sweden's Riksbank and some Fed speak from Dudley and Mester, and coming fresh from the 'surprise' BoC 25bps rate hike yesterday. The day's statistical schedule offers few if any market movers, featuring the overnight Australian Retail Sales and Trade Balance, German Industrial Production, Chinese FX Reserves, final Eurozone Q2 GDP, US weekly jobless claims (likely to see an outlier due to Hurricane Harvey) and Mexican CPI. Govt bond supply comes via way of France and Spain, totalling around EUR 14.0 bln. While one should not overplay yesterday's newsflow in terms of Congressional Democratic leaders (Schumer & Pelosi) upstaging the GOP on approval of the initial Hurricane relief spending bill and a 3-mth debt ceiling extension, the quasi surprise of the Bank of Canada rate hike and Fed vice chairman Fischer's resignation (for personal reasons), it should serve as a reminder that continued mindless Pavlovian 'buy the dip' in risk markets or reach for yield / duration in bonds may prove to be rather more hazardous. The more so given that adverse seasonal factors start to cast a long shadow over many asset markets over the next 3 months. There will also be plenty of discussion around Eurasia Group saying that the Saudi King will abdicate, above all for even suggesting this and thus going against protocol, though the Saudi King has not been well for some time, and Mohammed bin Salman has been straining at the leash to take over.

** Sweden - Riskbank policy meeting **
- As is now well documented, Riksbank policy settings are primarily aligned with the fortunes of the SEK, above all vs. the EUR, and incoming macroeconomic data interpreted to ensure that policy is held at ultra-loose levels, in one of the worst / best examples in the history of asymmetrical central bank bias. Thus strong data, be that inflation or growth, are interpreted as likely to boost the SEK, and therefore 'requiring' them to retain an aggressive easing bias to ensure that a stronger SEK does not dampen inflation going forward, regardless of current levels relative to its target (whatever that might be). By contrast 'weak data' will be argued to make the case for maintaining, perhaps upping, aggressive policy easing. The Riksbank is thus hostage to ECB policy settings, as well as guilty of making a complete mockery of anything that resembles some form of rational approach to policy making, let alone reliant on clearly outdated Philips curve type models, guidelines. Therefore it is very unsurprising that the consensus looks for no change from -0.50% or to the current pace of its QE programme, which is currently scheduled to end in December. For the record, given this ultra-loose policy stance, Q2 GDP was a paltry 1.7% q/q 4.0% y/y, July CPI rose 0.5% m/m 2.2% y/y, and core CPIF 0.6% m/m 2.4% y/y, the latter having been at or above target for the past 4 months.


** Eurozone - ECB council meeting **
- No changes to rates or the current EUR 60.0 Bln / month total QE volume are expected at today's meeting, nor is the ECB seen offering any material hints on how and when it might taper the QE programme, though it will probably confirm that its various committees have been instructed to look at best process, and all other related considerations. There will however be a fresh set of forecasts, which will inevitably be key in determining in how it will proceed. The latter are likely to see GDP forecasts for 2017 and 2018, if not 2019, revised higher from the June projections of 1.9%, 1.8% and 1.7%, but it will be the CPI forecasts that attract most attention. The near 5.0% appreciation in the EUR in trade weighted terms since the last set of forecasts, implies a downward revision from June's estimates for 2017 to 2019 for headline CPI of 1.5%, 1.3% and 1.6%, and core CPI 1.1%, 1.4% and 1.7%, even if downward revisions to its Unemployment forecasts provide something of a counter buffer. Perhaps as important in policy guidance terms will be the signal from the minutes of the July meeting, which sought to emphasize that the council will be looking to carve out greater room for manoeuvre, underlining that there will not be a straight line path in terms of QE volume reduction to zero, and that it will retain the option to increase the volume, should economic developments so require. There will inevitably be questions about bond scarcity, and how it might introduce further flexibility both in terms of the capital key, without dropping it, as well as volumes (proportion) of non-national govt debt it can purchase. Markets will inevitably hypersensitive to every word from the statement, even if fresh insights are likely to be very few and far between, and Draghi will be very careful in talking about the Euro, knowing full well that he needs to avoid saying anything that might leave the ECB as a 'hostage to fortune'.


from Marc Ostwald
 
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