Trading with point and figure

- Digesting weak China growth data, strong Australian labour data and mixed
UK RICS House Prices, awaiting BOE and SNB policy meetings and US weekly
jobless claims and CPI; Ireland to sell bonds

- China data suggesting rather more marked slowdown than expected, Retail
Sales particularly disappointing; raises questions over metals rally

- SNB may downgrade CHF assessment to overvalued from significantly
overvalued

- BoE: MPC on the horns of a dilemma given CPI jump, focus on vote,
rhetoric likely to be less accommodative, but actions speak louder
than words

- US CPI: gasoline prices set to drive headline back up; airfares, medical
care, autos and housing key

..........................................................................

********************
** EVENTS PREVIEW **
********************

A busy day is in prospect, with the statistical part heavily front loaded via way of the overnight run of poor China Retail Sales, Industrial Production and FAI, and robust Australian labour data and UK RICS House Price Balance warming the plate for the key US CPI data, while the events schedule is dominated by central banks, with the focus on the SNB and BoE policy meetings and a deluge of ECB speakers. In the EM central bank space, Turkey's TCMB is expected to continue to resist persistent political pressure to ease policy rates, and Ukraine's NBU and Chile's BCC are also seen on hold. Ireland will sell 9 & 20-yr debt.

** China - Aug Industrial Production, Retail Sales & FAI **
- The disappointing run of monthly activity data out of China perhaps offers an explanation for why SAFE decided to roll back some of the measures to restrain capital outflows, which have contributed to the CNY's rally vs the USD, though by contrast the CNY TWI has drifted lower. A slowdown in Q3 had been anticipated, especially in FAI and Industrial production, given that much of the authorities' infrastructure spending was heavily front-loaded into H1, and local govts are now running up against budget constraints, which have been further exacerbated by the moves to rein in credit growth in broader terms. The rather more disappointing aspect was the slowdown in Retail Sales to 10.1% vs a forecast of 10.5% and July's 10.4%, the more so given that this is a value, rather than a volume measure, and therefore given the jump in CPI, this was an even more marked slowdown in real terms, though base effects were also somewhat adverse. Be that as it may, with Property Investment and Sales proving to be very robust, despite the efforts to restrain credit and 'speculative' property investment, the Chinese authorities face considerable dilemmas going into the key party congress in November. Eminently this also suggests that the rallies in some industrial metals over the past year, in no small part due to expected demand related to Chinese infrastructure spending, may be due a more substantive correction.

** Switzerland - SNB policy meeting **
- Unsurprisingly there is a unanimous consensus that the SNB will keep its key 3-mth CHF LIBOR policy target rate at -0.75%, and the expectation is that this will be kept on hold until Q1 of 2019. The SNB will doubtless reiterate that it stands ready to intervene on the CHF exchange rate in the event of any unwanted strength. While CPI has established itself in positive territory for all of 2017, it remains very benign (August 0.5% y/y), and the recent GDP data proved to be very weak at just 0.3% q/q 0.3% y/y, with Q1 revised down to 0.1% q/q 0.6% y/y, with household consumption proving to be particularly sluggish in recent quarters at 0.2% and 0.1% q/q, as against Q4 2016 0.7% and Q3 2016 0.3%, and Services Exports also very sluggish, even though overall Domestic Demand continues to be very steady in the 0.3%/0.4% q/q area. Be that as it may, the key point of focus in market terms will be whether the shift in the EUR/CHF range out of the well-established 1.00/1.10 into 1.10/15 prompts any change of SNB language about the exchange rate, from the current assertion that the CHF is 'significantly overvalued' to say 'overvalued'. It should be stressed that this would be an acknowledgement of the recent shift, rather offering any hint that the SNB might be considering any policy shift, even if the pace (i.e. volume) of FX intervention has clearly slowed. The SNB will clearly be heartened that the ECB is preparing to ease up on its QE programme, the heightened level of geo-political tensions, and indeed the prospect of Italian elections in H1 of 2018 will ensure that it is in no hurry to signal any policy shifts.

** U.K. - September MPC meeting **
- While the bigger than expected rebound in CPI has prompted markets to raise the probability of a rate hike in the next 6 months, the probability of a totally out of character surprise move today is seen at a very low 12.5%. However the vote and the MPC's discussion on the inflation outlook will be picked through with a very fine toothcomb, with some seeing a relatively high possibility that there may be at least one more vote (i.e. 3-6) for a rate hike, with Haldane seen as the highest probability de nouveau dissenter. It is worth recapping some of the key points of the August (Q3 Inflation Report) meeting. The BoE reaffirmed an asymmetric bias in terms of the trade-off between reining in inflation, while not materially damaging growth and labour demand, as per the emphasis on "the MPC's remit specifies that, in exceptional circumstances, the Committee must balance any trade-off between the speed at which it intends to return inflation sustainably to the target and the support that monetary policy provides to jobs and activity." It added that "Monetary policy cannot prevent either the necessary real adjustment as the U.K. moves towards its new international trading arrangements or the weaker real income growth that is likely to accompany that adjustment over the next few years. Attempting to offset fully the effect of weaker sterling on inflation would be achievable only at the cost of higher unemployment and, in all likelihood, even weaker income growth." While it noted that "if the economy follows a path broadly consistent with the August central projection, then monetary policy could need to be tightened by a somewhat greater extent over the forecast period than the path implied by the yield curve underlying the August projections." However the contingency in terms of shifting the policy trajectory as outlined by Carney was that if growth proving to be a little stronger than expected, then the MPC would have to react. But even that appeared to be more of a personal opinion, with Carney adding that "I don't think it's appropriate for me to tie the hands of the committee by expanding on our view as a committee, particularly with respect to timing. To recap as clearly as I can in terms of our perspective, we have been operating in exceptional circumstances; we will be for some time, because of the extraordinary nature of the Brexit process and what that has done to all aspects of the economy relevant to the inflation target. Those exceptional circumstances have meant that we can take a judgement if we think it's appropriate to take a little longer to bring inflation back to target." Be that as it may, one could suggest that the better profile to the most recent Manufacturing and Trade data suggest a modest upgrade, though one could equally argue that the trend in real wages suggests a bigger squeeze on consumer spending, which will prove to be a more significant drag than any benefit from Manufacturing and Trade, the more so given often hefty revisions to Trade. Much of this will be moot for algo driven markets that will inevitably primarily react to the vote outcome. Perhaps the more important point is the international context, above all the comparison to Carney's former alma mater the Bank of Canada. The danger for the GBP is that markets take on board the point that there is a big difference between the pre-emptive policy of the Bank of Canada (where core inflation at 1.4% y/y, just above its cyclical low at 1.3%), and the UK where CPI is now 2.9%, just below the top of the BoE's target range of 1-3% and that RPIX at 4.1% y/y is way above the former target range of 1.5-3.5% - per se IF the BoE does hike rates it will be defensive and reactive, in contrast to the BoC, and by extension that this is not actually GBP positive - real rates will matter in the longer run!

** U.S.A. - August CPI **
- The pointers from Wednesday's marginally lower than expected PPI were relatively limited, though it is worth reiterating that the miss was wholly due to the expected jump in Energy prices (3.3% m/m) being partially offset by a drop in Food (-1.3%). Interestingly PPI also saw continued strength in Goods Prices (0.6% m/m 3.6% y/y) offset by a flattish profile to Services (unchanged m/m 1.7% y/y), which does signal that there is some evidence of some emergent pricing power in the goods sector. Energy prices, specifically gasoline (see Gas Buddy retail gasoline price chart attached), are expected to be a key driver of the expected 0.3% m/m rise that would edge up the y/y rate to 1.8%, with food prices likely to be less of a factor, though airfares (see Platts Jet Fuel Price) could be a factor for both headline and core CPI, the latter seen up 0.2% m/m, which implies a slip to 1.6% from 1.7% in y/y terms. The wildcards are likely to continue to be clothing, which finally posted a m/m gain in July (0.3%), Autos (last -0.5% m/m), and a close eye needs to be kept on Communication (last -0.1%), Prescription Drugs (last +1.3% m/m) and as ever OER (rent) which has risen 0.3% m/m in the past two months, though anecdotal evidence suggests that rents in some hot spots are starting to drift lower. Eminently core CPI will inevitably be the swing factor in terms of market reaction.


from Marc Ostwald
 
if 12504 dumps
bears should be in 12520 area on recoil...possibly
or 12500 holds and we get a new minor uptrend to retest highs
 
5min data
 

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