Quiet start to busy week for earnings, modest week for data; Broadbent
speech, US Existing Home Sales and Alphabet earnings top schedule;
markets focused on fall-out from Trump USD/Fed comments and speculation
on BoJ
- US Existing Home Sales: modest gain expected, Beige Book hints at some
downside risks
- BoJ policy tweaks: when is an ostensible 'taper' actually not 'tapering'
at all?
- Charts: US 2/10 yr spread; JGB 10 yr yield, JPY/USD & JPY IMM COT net
positioning
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** EVENTS PREVIEW **
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The week gets off to a slow start from a scheduled data, events and even earnings perspective, with US Existing Home Sales and a speech by BOE's Broadbent the likely highlights. But barring a clear dovish shift from Broadbent, as per the April BOE vote face on a May rate hike, markets will primarily be focused on the fall-out from the Trump comments on the Fed and the dollar on Friday, an unsurprisingly inconclusive G20 meeting and speculation about a policy tweak at the month ending BOJ meeting, which has seen 10-yr JGB yields more than double since Friday... (yes we can also do meaningless, perspective free hyperbole too! Ed.). That said the JGB 10-yr yield is still below the BoJ's 'intervention' threshold at 0.10%, which would need to be breached to precipitate some market pain. Some broader perspective is required here. If, as is widely recognized the BoJ will have to stick with its QQE programme for a very protracted period, given that attaining its 2.0% CPI target will take a number of years more, then it really does need to a) consider how it could tweak the QQE programme to make it more effective, and b) consider the fall-out of a further protracted period of QQE on domestic asset markets (it already downs >40% of JGBs and more than 70% of Japan equity ETFs), and on the domestic banking and fund management sector. Both those challenges are very substantial and markets would do well to eschew a simplistic interpretation that the BoJ will effectively be 'tapering'.
** U.S.A. - June Existing Home Sales **
- By Existing Home Sales standards, the projected 0.9% m/m increase to a very robust 5.48 Mln SAAR pace amounts to a flat reading, though this report does follow last week's Beige Book observation that 'contacts in several Districts reported slow growth in existing home sales but were not overly concerned about rising interest rates.' The latter tends to suggest some downside risks for today's report, and it will be interesting to note whether the recent recovery in inventories of unsold homes (4.1 months still being low, but above January's multi-decade low of just 3.2 months).
From Marc Ostwald