- Busier day for data as 'no change' BoJ digested: UK PSNB, Canada CPI &
Retail Sales, US final GDP, jobless claims, Philly Fed and FHFA House
Prices; Catalonia election, UK govt and Brexit, US debt ceiling also
in view
- BoJ: Kuroda leans hard against 'preparing for exit' chatter, plays
down growth momentum, puts inflation front and central
- Bond market dynamics increasingly moving into focus
** PLEASE NOTE **
This is the last update for this year. May I take the opportunity to
wish all our readers all the best for the festive period, and a happy
and prosperous New Year.
..........................................................................
********************
** EVENTS PREVIEW **
********************
A much busier day in terms of economic data is in prospect, as markets digest the Bank of Japan's as expected 'no change' policy decision, and indeed the final passage of the US Tax Reform Bill, though a tight deadline (tomorrow) still looms for raising the US debt ceiling. There are slightly better than expected NZ Q3 GDP and the rather unsurprising dip in UK Consumer Confidence, and generally positive surveys in Europe to digest. Ahead lies the UK PSNB budget data, Canadian CPI and Retail Sales and a slew of US data including final Q3 GDP, weekly jobless claims, the Philly Fed Manufacturing survey and FHFA House Prices. In event terms, the Catalonia regional election will be the main focus, along with Brexit related news, and the forced resignation of UK PM May's close ally Damian Green. In respect of the BoJ, the upgrades to the growth outlook were not as noteworthy as Kuroda being at pains to lean against the impression that the BoJ might be looking to adjust policy anytime soon, above all that BoJ talk around 'reversal points' was not a signal. He was at least very clear that inflation being close to / at their 2.0% target will be the key focal point, though as has been observed elsewhere, this still leaves some wiggle room in terms of arguing that such a move may not in fact be sustained.
However it is markets' internal dynamics that may prove to be the key talking point, as investors contemplate the break higher in US Treasury yields (though the 10 yr yield is in effect unchanged on the year), and what this may imply for other asset classes in 2018. As previously observed, it has been the case for a very protracted period that on a relative basis, riskier assets, be that IG, HY or EM Credit or equities, have always looked more attractive when govt bond yields (nominal and real) are so low. By extension a more serious setback for 'riskier assets' has always been contingent on a sustained rise in govt yields. Much will inevitably depend on how far this rise in US and European yields goes, with the halving of the ECB's QE programme to EUR 30 Bln per month in Q1, and the Fed upping the pace of its balance sheet reduction to $20 Bln per month presenting a modest headwind. A rather greater challenge will be adverse base effects for inflation in many countries as the unexpected setbacks in February through August 2017 drop out of the comparison. The latter challenges the assumption, which is all too visible in 30-yr govt yields, that inflation will remain very low for the foreseeable future.
from Marc Ostwald