Dentalfloss
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US core retail sales today
mexican drug cartels reporting their numbers
expect the volumes to be high
mexican drug cartels reporting their numbers
expect the volumes to be high
Trading with point and figure
- Thread starter Dentalfloss
- Start date
- Watchers 90
Dentalfloss
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usdjpy lined up @110.00
for a pump or dump
for a pump or dump
Dentalfloss
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Cable in rez
Dentalfloss
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eurusd 1.1936 lined up for a pump or dump
Dentalfloss
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from Marc Ostwald
- Digesting China monthly activity data and mixed array of European Q1
GDP readings, awaiting UK labour and wages, US Retail Sales, NY Fed
Manufacturing and NAHB Housing surveys, and another deluge of central
bank speakers; Erdogan further undermines TCMB and TRY
- UK Labour data: solid Employment gain seen, wage acceleration expected
to stall modestly
- US Retail Sales: autos to weigh, gasoline prices to boost headline, core
spending expected to pick up; Clothing and Building Materials the wild
cards
- China activity data: Production boost unlikely to last, though oil sector
output strength notable: pollution, property and credit curbs weighing
elsewhere
- Europe GDP: mixed picture, some inconsistencies in German GDP, CEE still
robust despite big miss in Romania
..........................................................................
********************
** EVENTS PREVIEW **
********************
Once again it will be a case of Monday's data famine being juxtaposed to today's data deluge, with a raft of RBA, Riksbank and Fed speakers, and indeed plenty of corporate earnings offering much for markets to ponder, IF they are so inclined. Statistically there are the run of China Retail Sales, Industrial Production, FAI and Property Prices and European Q1 GDP readings to digest ahead of UK Employment and wages & the first revision to Eurozone GDP, while the afternoon brings US Retail Sales, NY Fed and NAHB Housing surveys. Corporate Earnings highlights include Noble, Tencent, Allianz, Commerzbank, Metro, RWE, Vodafone and Home Depot. On the central bank front, yesterday's comments from ECB's Villeroy emphasizing that a) the dip in inflation is transitory, b) any French Q2 GDP weakness probably related to May holidays, c) whether the QE programme ends in September or December is moot, d) rates will rise 'well past' the end of QE mean 'quarters not years' was instructive. Villeroy is very much a dove, and this was not 'dovish talk', even if it still seems likely that the EUR/USD rate differential will end up widening a further 75-100 bps before the ECB moves. Talking of central banks, Turkish President Erdogan appears to be determined to completely undermine the central (TCMB), leaving the TRY with nowhere to hide.
** China - April Retail Sales, Industrial Production, FAI **
- Today's run of China activity data displayed a clear loss of momentum, with the solid beat on Industrial Production at 7.0% y/y disguising rather disparate underlying trends. Strength was evident in Autos and Steel, and the oil sector, with a strong suspicion that overall production was boosted as manufacturers may be trying to boost output to beat trade tariffs going forward. The steel sector boost was clearly helped by better margins, along with the end of winter pollution related output caps, and is likely to fade in coming months. The drop in Property Sales (-4.1% yy/y vs. March +3.2%), in no small part credit curb related, looks to be weighing on large ticket Retail Sales, with weak CPI inflation also taking its toll at the margin. While FAI lost some momentum, private sector FAI remained reasonably solid, though curbs on local government spending on infrastructure are likely to see some further deceleration in coming months. Sadly the monthly data run still has no official data on services output, which looks to be very buoyant and underlining a major rebalancing in the economy. A final word on oil sector output, which has clearly been given a major boost by generous export (product) and import (crude) quotas with refinery runs running just short of record highs, which was all the more impressive given that two Sinopec and one CNOOC plants were closed for maintenance. It also appears that refiners are becoming rather sophisticated and effective in terms of their hedging activity (which will doubtless help volumes in the recently launched oil futures contract), though the question for energy markets remains whether a product glut emerges from China, even if oil markets are obviously rather more focussed on prospects for Iranian output in the short-term,
** U.K. - March/April labour data **
With the BoE's Q2 Inflation Report inflation and wage forecast cuts ringing in our ears, today's labour data has perhaps rather less sensitivity given that the key near-term issue for its policy outlook is whether Q2 GDP rebound from what is presumed to have been a primarily weather related stall in Q1. The Average Weekly Earnings measures are seen diverging modestly, with headline wages dipping to 2.7% y/y from 2.8%, while the ex-Bonus measure is expected to edge up to 2.9% y/y, close to the July 2015 cyclical peak of 3.0% in nominal terms, though in real terms this would only equate to +0.4% y/y. The FLS Employment data require rather attention, after usual turn of year seasonal noise, and are projected to rebound to +129K from prior readings of 55K, 168K and 88K, though this runs somewhat against the grain of quite a lot of survey data, though certainly in line with vacancies close to record highs, even if many positions are poorly paid, or likely difficult to fill given chronic skills shortages.
** U.S.A. - April Retail Sales **
- Private Consumption was clearly very disappointing in Q1, and predicated on a sharp setback in Auto Sales, which has been very heavily boosted in Q4 by replacement purchases in the wake of last year's run of hurricanes, and was therefore something of a reactive correction. Presumably auto sales should revert to trend following the 'push me, pull you' of the prior two quarters, which would appear to be assumed in forecast for a modest 0.3% m/m headline (vs March's auto boosted 0.6% m/m), and gains of 0.4% m/m for the ex-Autos & Gasoline and the core measures, with gasoline sales likely to have been boosted by a relatively sharp in pump prices, even if the CPI data appeared to deny this. The wild card elements may well be the items that were surprisingly weak in March, i.e. Building Materials (-0.6% m/m) and Apparel (-0.8% m/m). There may also be a boost due to seasonal adjustments for typical tax payment and refund patterns being thrown to the wind due to the tax cuts that came into effect in January, but largely only got reflected in paychecks in very late February. The NY Fed Manufacturing and NAHB Housing surveys are both seen little changed vs April, and would have to spring large surprises to overshadow Retail Sales, though it will be interesting to not whether the gentle rise in Mortgage Rates is being cited by home builders and realtors as having any impact.
** Europe - Q1 GDP (round 2) **
- There will be some disappointment at the miss in Germany: 0.3% q/q 2.3% y/y vs. expected 0.4%/2.4%, with the scant details provided the Federal Statistics office pointing to a substantial drag from Net Exports, which should be welcomed by those bemoaning the size of the German Trade surplus, though as with the sluggish profile of Household Consumption may be attributable to the widely reported combination of strikes, the flu epidemic and bad weather. However that leaves a question over how construction along with equipment investment were reported as the main drivers of Q1 GDP; if construction was indeed that strong despite the bad weather, then Q2 GDP should see a sharp rebound as other sectors recover from winter & strike effects, and personal consumption gets a boost from a big rise in pay settlements in many sectors. Elsewhere the picture was mixed, with an encouraging pick-up in Finland to 3.1% y/y (March) and Norway (Q1 mainland 0.6% q/q vs. forecast 0.5%, Q4 revised up to 0.7% q/q), and a mixed picture in the CEE region: with a very large miss in Romania: Flat q/q vs. expected 0.8% q/q, though elsewhere growth remained buoyant, even if Czech GDP missed forecasts of 0.7% with a 0.5% q/q (still very robust in y/y terms at 4.5%), while Slovakia saw GDP pick up to 3.6% y/y as expected, and Hungary beat forecasts of 1.0% q/q, with a 1.2% q/q print. Dutch GDP is expected to remain very solid at 0.6% q/q 3.4% y/y, while Poland is projected to have been the strongest CEE economy with 1.3% q/q 4.8% y/y (vs. Q4 0.9%/4.9%) and Bulgaria to accelerate to 3.8% from 3.5%. Thus what emerges from continental Europe as a whole is that while growth was rather more patchy, the underlying pace remains robust.
- Digesting China monthly activity data and mixed array of European Q1
GDP readings, awaiting UK labour and wages, US Retail Sales, NY Fed
Manufacturing and NAHB Housing surveys, and another deluge of central
bank speakers; Erdogan further undermines TCMB and TRY
- UK Labour data: solid Employment gain seen, wage acceleration expected
to stall modestly
- US Retail Sales: autos to weigh, gasoline prices to boost headline, core
spending expected to pick up; Clothing and Building Materials the wild
cards
- China activity data: Production boost unlikely to last, though oil sector
output strength notable: pollution, property and credit curbs weighing
elsewhere
- Europe GDP: mixed picture, some inconsistencies in German GDP, CEE still
robust despite big miss in Romania
..........................................................................
********************
** EVENTS PREVIEW **
********************
Once again it will be a case of Monday's data famine being juxtaposed to today's data deluge, with a raft of RBA, Riksbank and Fed speakers, and indeed plenty of corporate earnings offering much for markets to ponder, IF they are so inclined. Statistically there are the run of China Retail Sales, Industrial Production, FAI and Property Prices and European Q1 GDP readings to digest ahead of UK Employment and wages & the first revision to Eurozone GDP, while the afternoon brings US Retail Sales, NY Fed and NAHB Housing surveys. Corporate Earnings highlights include Noble, Tencent, Allianz, Commerzbank, Metro, RWE, Vodafone and Home Depot. On the central bank front, yesterday's comments from ECB's Villeroy emphasizing that a) the dip in inflation is transitory, b) any French Q2 GDP weakness probably related to May holidays, c) whether the QE programme ends in September or December is moot, d) rates will rise 'well past' the end of QE mean 'quarters not years' was instructive. Villeroy is very much a dove, and this was not 'dovish talk', even if it still seems likely that the EUR/USD rate differential will end up widening a further 75-100 bps before the ECB moves. Talking of central banks, Turkish President Erdogan appears to be determined to completely undermine the central (TCMB), leaving the TRY with nowhere to hide.
** China - April Retail Sales, Industrial Production, FAI **
- Today's run of China activity data displayed a clear loss of momentum, with the solid beat on Industrial Production at 7.0% y/y disguising rather disparate underlying trends. Strength was evident in Autos and Steel, and the oil sector, with a strong suspicion that overall production was boosted as manufacturers may be trying to boost output to beat trade tariffs going forward. The steel sector boost was clearly helped by better margins, along with the end of winter pollution related output caps, and is likely to fade in coming months. The drop in Property Sales (-4.1% yy/y vs. March +3.2%), in no small part credit curb related, looks to be weighing on large ticket Retail Sales, with weak CPI inflation also taking its toll at the margin. While FAI lost some momentum, private sector FAI remained reasonably solid, though curbs on local government spending on infrastructure are likely to see some further deceleration in coming months. Sadly the monthly data run still has no official data on services output, which looks to be very buoyant and underlining a major rebalancing in the economy. A final word on oil sector output, which has clearly been given a major boost by generous export (product) and import (crude) quotas with refinery runs running just short of record highs, which was all the more impressive given that two Sinopec and one CNOOC plants were closed for maintenance. It also appears that refiners are becoming rather sophisticated and effective in terms of their hedging activity (which will doubtless help volumes in the recently launched oil futures contract), though the question for energy markets remains whether a product glut emerges from China, even if oil markets are obviously rather more focussed on prospects for Iranian output in the short-term,
** U.K. - March/April labour data **
With the BoE's Q2 Inflation Report inflation and wage forecast cuts ringing in our ears, today's labour data has perhaps rather less sensitivity given that the key near-term issue for its policy outlook is whether Q2 GDP rebound from what is presumed to have been a primarily weather related stall in Q1. The Average Weekly Earnings measures are seen diverging modestly, with headline wages dipping to 2.7% y/y from 2.8%, while the ex-Bonus measure is expected to edge up to 2.9% y/y, close to the July 2015 cyclical peak of 3.0% in nominal terms, though in real terms this would only equate to +0.4% y/y. The FLS Employment data require rather attention, after usual turn of year seasonal noise, and are projected to rebound to +129K from prior readings of 55K, 168K and 88K, though this runs somewhat against the grain of quite a lot of survey data, though certainly in line with vacancies close to record highs, even if many positions are poorly paid, or likely difficult to fill given chronic skills shortages.
** U.S.A. - April Retail Sales **
- Private Consumption was clearly very disappointing in Q1, and predicated on a sharp setback in Auto Sales, which has been very heavily boosted in Q4 by replacement purchases in the wake of last year's run of hurricanes, and was therefore something of a reactive correction. Presumably auto sales should revert to trend following the 'push me, pull you' of the prior two quarters, which would appear to be assumed in forecast for a modest 0.3% m/m headline (vs March's auto boosted 0.6% m/m), and gains of 0.4% m/m for the ex-Autos & Gasoline and the core measures, with gasoline sales likely to have been boosted by a relatively sharp in pump prices, even if the CPI data appeared to deny this. The wild card elements may well be the items that were surprisingly weak in March, i.e. Building Materials (-0.6% m/m) and Apparel (-0.8% m/m). There may also be a boost due to seasonal adjustments for typical tax payment and refund patterns being thrown to the wind due to the tax cuts that came into effect in January, but largely only got reflected in paychecks in very late February. The NY Fed Manufacturing and NAHB Housing surveys are both seen little changed vs April, and would have to spring large surprises to overshadow Retail Sales, though it will be interesting to not whether the gentle rise in Mortgage Rates is being cited by home builders and realtors as having any impact.
** Europe - Q1 GDP (round 2) **
- There will be some disappointment at the miss in Germany: 0.3% q/q 2.3% y/y vs. expected 0.4%/2.4%, with the scant details provided the Federal Statistics office pointing to a substantial drag from Net Exports, which should be welcomed by those bemoaning the size of the German Trade surplus, though as with the sluggish profile of Household Consumption may be attributable to the widely reported combination of strikes, the flu epidemic and bad weather. However that leaves a question over how construction along with equipment investment were reported as the main drivers of Q1 GDP; if construction was indeed that strong despite the bad weather, then Q2 GDP should see a sharp rebound as other sectors recover from winter & strike effects, and personal consumption gets a boost from a big rise in pay settlements in many sectors. Elsewhere the picture was mixed, with an encouraging pick-up in Finland to 3.1% y/y (March) and Norway (Q1 mainland 0.6% q/q vs. forecast 0.5%, Q4 revised up to 0.7% q/q), and a mixed picture in the CEE region: with a very large miss in Romania: Flat q/q vs. expected 0.8% q/q, though elsewhere growth remained buoyant, even if Czech GDP missed forecasts of 0.7% with a 0.5% q/q (still very robust in y/y terms at 4.5%), while Slovakia saw GDP pick up to 3.6% y/y as expected, and Hungary beat forecasts of 1.0% q/q, with a 1.2% q/q print. Dutch GDP is expected to remain very solid at 0.6% q/q 3.4% y/y, while Poland is projected to have been the strongest CEE economy with 1.3% q/q 4.8% y/y (vs. Q4 0.9%/4.9%) and Bulgaria to accelerate to 3.8% from 3.5%. Thus what emerges from continental Europe as a whole is that while growth was rather more patchy, the underlying pace remains robust.
Dentalfloss
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eurgbp 0.8840 lined up
Dentalfloss
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will the dollar buyers chicken out..??
Dentalfloss
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dax 12960..ish lining up for a p/d
Dentalfloss
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C
cantagril
C
cantagril
Stopped out on EG +1
Stop at +2 on GBPCHF. It did reach 60 but I didn't have an order in.....
Last edited by a moderator:
C
cantagril
Long EG again at .8796 Target .8816
C
cantagril
Dentalfloss
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mornin folks
C
cantagril
The EG 15m is bearish whilst the GBPCHF is Bullish - no surprises there ....but we're back down to the .8750 area which has been seriously supported in the past plus UK Brexit worries are getting increasingly....um, worrying.
Meanwhile the divergence between the two pairs has widened anomalously (IMHO) so the immediate future could be fun, if not profitable
For obvious reasons I haven't got any price targets but am hoping for 50 to 100 pips out of this one..........
07h20
Long EG .8757
Long GBPCHF 1.3508
Meanwhile the divergence between the two pairs has widened anomalously (IMHO) so the immediate future could be fun, if not profitable
For obvious reasons I haven't got any price targets but am hoping for 50 to 100 pips out of this one..........
07h20
Long EG .8757
Long GBPCHF 1.3508
Attachments
C
cantagril
...and of course, a very Good Morning - I trust Your Grace had a pleasant day amongst the proletariat of the South Coast
Dentalfloss
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...and of course, a very Good Morning - I trust Your Grace had a pleasant day amongst the proletariat of the South Coast
an excellent day
really hot in Brighton
i love the drive through the villages to get there...even better by bus,,yu can really take it all in when you are not driving
Dentalfloss
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indices lookin a tad bullish
Dentalfloss
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Busy schedule of central bank speakers and EM rate decisions tops schedule,
weak Japan GDP and Australia Wages to digest, awaiting final Eurozone CPI
and US Industrial Production & Housing Starts; North Korea developments,
Lega/M5S debt write-off proposals and Fed policy debate probably more
significant
- US Industrial Production: manufacturing hours point to another solid gain,
auto output perhaps a wild card
- US Housing Starts: no flies on US housing demand, as emphasized by
yesterday's NAHB, modest setback seen for Starts, inherently volatile and
very much a lagging indicator
- Italy: debt write-off chatter likely to harden already robust Berlin
resistance to banking union and closer fiscal ties
- Fed: debate on rate trajectory starting to get some traction, likely
to prompt some dissonant Fed speak
- Charts: US 10-yr yield, US GS Financial Conditions Index and China &
Japan holdings of US Treasuries
..........................................................................
********************
** EVENTS PREVIEW **
********************
The data schedule is rather less busy today, though the run of G7 central bank speakers, and a plethora of EM/CEE rate decision should provide a busy run of headlines, with a further accompaniment of a micro sized (EUR 2.0 BlN) 10yr Bund sale and a smattering of corporate earnings (Burberry, Telecom Italia & Cisco). Statistically the overnight Japan Q1 GDP (weak due to an unexpected CapEx drop and weak Personal Consumption) & Australian Q1 Wages (in line with expectations at a still very sluggish 2.1% y/y) are probably more worthy of note than the remainder of the data run. Even if any downward revision to Eurozone CPI, or better than expected US Housing Starts / Industrial Production would probably pressure EUR/USD down, and indeed US yields up. ECB speakers are plentiful, and include the "big 3" - Draghi, Coeure & Praet, with BoE's Haldane, another slew of Fed speakers and BoCs' Schembri. Today's Polish core CPI at a forecast 0.6% y/y should serve to underline just why the NBP will keep its key policy rate at 1.50% and signal a neutral outlook, despite the barnstorming 1.5% q/q 5.1% y/y seen on yesterday's Q1 GDP. Elsewhere Brazil's COPOM is seen cutting rates by a further 25 bps to a record low 6.25%, with the IPCA IBGE inflation measure still well below target at 2.76% y/y, and despite the steady decline in the BRL (vs USD) since February. Thailand's BoT will be relieved that the recent bout of THB weakness has in the greater scheme of things proven to be largely inconsequential (particularly when compared to 1997/98), and with inflation still subdued, and growth still rather subpar, it is thus unsurprising that it was happy to keep rates at the 1.50% level in place since April 2015. The wildcard could be the quarterly meeting of the Bank of Zambia, which probably considers itself lucky that the likes of Angola and Mozambique have hogged the spotlight over the past 2 years in southern Africa, allowing it to reduce rates down to their pre-2014 crisis levels, with perhaps some scope for a modest 25/50 bps cut from the current 9.75%. However current EM currency pressures suggests it might be better to exercise restraint short-term.
Eminently the sudden change of heart displayed by North Korea in evidence overnight, via way of its cancellation of a meeting with South Korean leaders, and questioning whether the Trump Kim Jong Un summit will take place, is a timely reminder that this was never going to be as plain sailing as recent developments appeared to imply. Indeed the fact that US/Sth Korea military exercises were cited as the reason for this sudden volte-face probably tells us that it may well be a case of China exercising its influence. Talking of China comments from Trump trade adviser Branstad overnight, emphasizing that the US would above all like to see a sharp in increase in Chinese Agri imports from the US, probably tells us that Trump's surprising move on ZTE was in fact tacitly in response to a threat from China to double down on agricultural sanctions, though it is also clear that US Congress is very much against any lifting of the ban on ZTE buying US made components. But perhaps as pertinent are two other developments that came into much clearer view yesterday, namely the new Italian Government's call for a EUR 250 Bln write-off of Italian BTPs (now said to be under discussion rather than a firm proposal), and the debate at the Fed about its current rate trajectory. In the case of the former, this not only confirms fears about the new Italian govt, but will only serve to harden German unwillingness to consider banking union (for which it was lambasted by outgoing ECB V-P Constancio yesterday) given only modest progress in bank balance sheet resolution in Southern Europe (though German bank balance sheets are hardly something to brag about, and indeed any form of tighter fiscal union, with implicit burden sharing. As for the Fed, SF/NY Fed's Williams, now probably the most influential of Fed policymakers, reiterated his view that the Fed should only aim to get to its neural Fed Funds rate of 2.5-3.0%, implying three or four more rate hikes. Others such as Meister, George and Rosengren are unlikely to agree. Williams signalled that the Fed needs to adjust its communication to reflect this. Per se markets need to prepare themselves for a rather more divergent run of policymaker pronouncements, which will almost certainly contribute to a rather more volatile asset price environment.
** U.S.A. - April Housing Starts / Industrial Production **
- Unsurprisingly a modest setback is expected both Housing Starts and Building Permits, though the projected 1.31 Mln SAAR pace for Starts and 1.35 Mln for Permits would still be a hair's breadth away from their post GFC highs. Yesterday's NAHB Housing Index (70 vs. March 68) remained very robust, with the Current Sales Index ticking up to 76 from 74, and the 6-month Sales Outlook index at 77, implying robust underlying demand, despite the gentle rise in Mortgage Rates. It should probably be added that a protracted downturn in the latter would be far more significant signal of a change in sentiment than any even very sharp setback in inherently volatile Housing Starts, which are the 'lagging indicator' for the sector. As for Industrial Production, the robust Manufacturing Average Weekly Hours (and surveyed output indices) predicate forecasts of 0.6% m/m for Manufacturing Output (vs March 0.1%), with April Manufacturing Hours rising to 41.1 from 40.9, and Construction 39.5 vs 39.3, while Mining (i.e. oil) dipped to a still very strong 45.6 from 45.8.
========================== ** THE DAY AHEAD ** ===========================
********************
weak Japan GDP and Australia Wages to digest, awaiting final Eurozone CPI
and US Industrial Production & Housing Starts; North Korea developments,
Lega/M5S debt write-off proposals and Fed policy debate probably more
significant
- US Industrial Production: manufacturing hours point to another solid gain,
auto output perhaps a wild card
- US Housing Starts: no flies on US housing demand, as emphasized by
yesterday's NAHB, modest setback seen for Starts, inherently volatile and
very much a lagging indicator
- Italy: debt write-off chatter likely to harden already robust Berlin
resistance to banking union and closer fiscal ties
- Fed: debate on rate trajectory starting to get some traction, likely
to prompt some dissonant Fed speak
- Charts: US 10-yr yield, US GS Financial Conditions Index and China &
Japan holdings of US Treasuries
..........................................................................
********************
** EVENTS PREVIEW **
********************
The data schedule is rather less busy today, though the run of G7 central bank speakers, and a plethora of EM/CEE rate decision should provide a busy run of headlines, with a further accompaniment of a micro sized (EUR 2.0 BlN) 10yr Bund sale and a smattering of corporate earnings (Burberry, Telecom Italia & Cisco). Statistically the overnight Japan Q1 GDP (weak due to an unexpected CapEx drop and weak Personal Consumption) & Australian Q1 Wages (in line with expectations at a still very sluggish 2.1% y/y) are probably more worthy of note than the remainder of the data run. Even if any downward revision to Eurozone CPI, or better than expected US Housing Starts / Industrial Production would probably pressure EUR/USD down, and indeed US yields up. ECB speakers are plentiful, and include the "big 3" - Draghi, Coeure & Praet, with BoE's Haldane, another slew of Fed speakers and BoCs' Schembri. Today's Polish core CPI at a forecast 0.6% y/y should serve to underline just why the NBP will keep its key policy rate at 1.50% and signal a neutral outlook, despite the barnstorming 1.5% q/q 5.1% y/y seen on yesterday's Q1 GDP. Elsewhere Brazil's COPOM is seen cutting rates by a further 25 bps to a record low 6.25%, with the IPCA IBGE inflation measure still well below target at 2.76% y/y, and despite the steady decline in the BRL (vs USD) since February. Thailand's BoT will be relieved that the recent bout of THB weakness has in the greater scheme of things proven to be largely inconsequential (particularly when compared to 1997/98), and with inflation still subdued, and growth still rather subpar, it is thus unsurprising that it was happy to keep rates at the 1.50% level in place since April 2015. The wildcard could be the quarterly meeting of the Bank of Zambia, which probably considers itself lucky that the likes of Angola and Mozambique have hogged the spotlight over the past 2 years in southern Africa, allowing it to reduce rates down to their pre-2014 crisis levels, with perhaps some scope for a modest 25/50 bps cut from the current 9.75%. However current EM currency pressures suggests it might be better to exercise restraint short-term.
Eminently the sudden change of heart displayed by North Korea in evidence overnight, via way of its cancellation of a meeting with South Korean leaders, and questioning whether the Trump Kim Jong Un summit will take place, is a timely reminder that this was never going to be as plain sailing as recent developments appeared to imply. Indeed the fact that US/Sth Korea military exercises were cited as the reason for this sudden volte-face probably tells us that it may well be a case of China exercising its influence. Talking of China comments from Trump trade adviser Branstad overnight, emphasizing that the US would above all like to see a sharp in increase in Chinese Agri imports from the US, probably tells us that Trump's surprising move on ZTE was in fact tacitly in response to a threat from China to double down on agricultural sanctions, though it is also clear that US Congress is very much against any lifting of the ban on ZTE buying US made components. But perhaps as pertinent are two other developments that came into much clearer view yesterday, namely the new Italian Government's call for a EUR 250 Bln write-off of Italian BTPs (now said to be under discussion rather than a firm proposal), and the debate at the Fed about its current rate trajectory. In the case of the former, this not only confirms fears about the new Italian govt, but will only serve to harden German unwillingness to consider banking union (for which it was lambasted by outgoing ECB V-P Constancio yesterday) given only modest progress in bank balance sheet resolution in Southern Europe (though German bank balance sheets are hardly something to brag about, and indeed any form of tighter fiscal union, with implicit burden sharing. As for the Fed, SF/NY Fed's Williams, now probably the most influential of Fed policymakers, reiterated his view that the Fed should only aim to get to its neural Fed Funds rate of 2.5-3.0%, implying three or four more rate hikes. Others such as Meister, George and Rosengren are unlikely to agree. Williams signalled that the Fed needs to adjust its communication to reflect this. Per se markets need to prepare themselves for a rather more divergent run of policymaker pronouncements, which will almost certainly contribute to a rather more volatile asset price environment.
** U.S.A. - April Housing Starts / Industrial Production **
- Unsurprisingly a modest setback is expected both Housing Starts and Building Permits, though the projected 1.31 Mln SAAR pace for Starts and 1.35 Mln for Permits would still be a hair's breadth away from their post GFC highs. Yesterday's NAHB Housing Index (70 vs. March 68) remained very robust, with the Current Sales Index ticking up to 76 from 74, and the 6-month Sales Outlook index at 77, implying robust underlying demand, despite the gentle rise in Mortgage Rates. It should probably be added that a protracted downturn in the latter would be far more significant signal of a change in sentiment than any even very sharp setback in inherently volatile Housing Starts, which are the 'lagging indicator' for the sector. As for Industrial Production, the robust Manufacturing Average Weekly Hours (and surveyed output indices) predicate forecasts of 0.6% m/m for Manufacturing Output (vs March 0.1%), with April Manufacturing Hours rising to 41.1 from 40.9, and Construction 39.5 vs 39.3, while Mining (i.e. oil) dipped to a still very strong 45.6 from 45.8.
========================== ** THE DAY AHEAD ** ===========================
********************
Dentalfloss
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From Marc Ostwald
