Trading with point and figure

spx

10nynsz.gif
 
pullback areas..bulls need to support that latest break
2160/round
2157-2158 breakout point/aqua horizontal
2152 trend supp

we could break higher
 
** EVENTS PREVIEW **
********************

The U.K. returns to centre stage with the Bank of England's MPC rate decision and minutes, which in terms of the policy schedule is accompanied by the Bank of Korea's as expected no change ratre decision, and another gaggle of Fed speakers. The statistical run has the overnight Singapore Q2 advance GDP, Australian Unemployment (better than expected due to Full-time jobs jump) and UK RICS House Price survey (headline better than forecast, but expectations indices very weak) to digest ahead of US PPI and weekly jobless claims. The Q2 earnings seasons steps up a gear with JPM and Blackrock topping the list of those reporting. There is also incoming UK PM May's new cabinet to consider. In simple terms, Mrs May has delivered on her promise that 'Brexit means Brexit' with the appointment of the acerbic Mr Davis as chief Brexit negotiator and Mr Fox as Trade Secretary, and the very surprising appointment of Mr Johnson as Foreign Secretary (with a de facto reduced role due to the other appointments) - though the underlying message would appear to be 'you broke it, you own it'. While hotly tipped ahead of the announcement, Mr Hammond taking over as Chancellor of the Exchequer brings yet another bean counter to the post (albeit one with an economics degree), which hardly bodes well for the idea of fashioning a major infrastructure spending plan, and being largely charisma free, Budget and Autumn Statement days are likely to be rather dull and dour affairs. The Fed's Beige Book offered few major surprises, it rarely does, with growth still "modest to moderate", but patchy across regions and sector. Key elements were a lack of price pressures, solid labour demand and modest/moderate wage pressures, while consumer spending was seen as solid but softening a little, with the latter offset by signs that the manufacturing sector is starting to recover. On balance this maintains the FOMC's room for policy manoeuvre.

** U.K. - MPC rate decision **
- While the OIS market has a 25 bps rate cut to 0.25% pretty much fully discounted, and there are some commentators calling for a more aggressive cut to 0.10% or even zero, it also has to be observed that Carney's comments at his press conference 2 weeks ago effectively bounced the rest of the MPC into this decision, which may well prompt some dissenting votes. It is highly debatable whether there is sufficient (if any) hard economic evidence, to justify a policy move at today's meeting, and whether a rate cut would actually offer any material benefits to the economy, when rates have been stuck at 0.50% since March 2009. However if rates were not cut today, even in the context of a future cut remaining a very real possibility, markets would certainly react sharply, with the ensuing volatility not only for the GBP and UK assets, but also more broadly across markets, being precisely what is not required at the current juncture. A minority are also expecting more QE, though this would even more debatable in beneficial terms, the more so give the diabolical level of liquidity in the secondary market for Gilts. A targeted variation on the FLS scheme seems more likely, but would require a rather clearer picture on where pressure points are emerging in the economy, which at the very earliest would be at next month's Inflation report meeting.

Much has been made of the fact that Mr Carney was highly prescient in easing policy long before the sub-prime crisis crystallized into the Lehman collapse. This post hoc analysis ignores the fact that the oil sector paced strength of the CAD was a clear headwind to the Canadian economy, and the easing was more a case of an early example of interest rate driven 'currency wars', which in Canada's case was hardly innovative. The key aspect is rather more that again taking up the baton of monetary policy easing so close to the so-called zero bound on rates, which Mr Carney has previously signalled is a blunt, ineffective and risky exercise, is very unlikely to be a panacea. Above all these are not pre-Lehman markets, central bank dictated asset mis-allocation realities are ipso facto perhaps the enemy, rather than a friend, and the bar to unintended consequences (above all in market dislocation terms) is in effect lowered by a considerable margin.

** U.S.A. - June PPI / Initial Claims **
- As with yesterday's Import Prices, forecasters look for energy and raw materials prices to be the main driver of an expected 0.3% m/m gain, while core measures are seen eking a marginal 0.1% m/m rise, which would leave headline y/y readings close to flat, and ex-Food & Energy at a very benign 1.0%. Interestingly, the Import and Export price data yesterday highlighted some surprisingly high inconsistencies in terms of m/m changes, across a number of sub-indices, as the table below highlights:
from Marc Ostwald
 
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