Trading with point and figure

DAX pp

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** EVENTS PREVIEW **
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The week gets off to a relatively subdued start in terms of the data and events schedule, with the thin summer holiday trading conditions over the next 2-3 weeks exacerbated by the Assumption and other public holidays. The rather unsurprising, lower than expected Japan GDP data and the as ever noisy hyperbole about the PBOC's China monthly FX flow data are on the to be digested list ahead of the US NY Fed Manufacturing survey and NAHB Housing Market index, which are both expected to be little changed vs prior month readings. Per se markets are likely to their own flow dynamics, which look to be distinctly one way at the current juncture, in other words 'path of least resistance' passive job preservation strategies, which left the VIX future with a record net short last week, while the TINA (There Is No Alternative) has bond investors allocating ever more money to EM foreign and local currency debt, in an ever more desperate financial repression dictated reach for yield, which has little to do with risk appetite, or indeed a reassessment of EM risk profiles. Rather it signals that the effective commoditization of G7 government bond markets (due to negligible or negative yields) forcing investors' hands, even if the impotence of central bank rate and unconventional policies is all too obvious, as is the latter's woeful and myopic academic text book analysis of the forces at work in their domestic and indeed the global economy.

In terms of the rest of the week's schedule, it will be a relatively busy week for statistics, above all from the UK (CPI, PPI, Retail Sales, Unemployment, PSNB) and USA (CPI, Industrial Production, Housing Starts, Philly Fed survey; Japan also sees Trade; Australia and NZ Unemployment; Canada CPI and Retail Sales; China Property Prices. Much is being made of the week's run of UK data as being crucial in terms of forming a judgement on how the Brexit referendum result has impacted the economy. For the impatient short-termist fraternity that is all too visible in financial markets and media, the desire to deploy far-fetched hyberbole strewn knee-jerk reactions and pontificating pronouncements (aka 'forecasts) will be all too evident, but in truth a genuine picture of short-term trends will not emerge until the latter end of Q4. In that respect it is well worth noting the overnight run of surveys, which range from the sharp rebound in High Street Footfall (notable for the fact that any positive readings run against underlying secular trends as more and more retail spending migrates to the internet/non-store arena), a very modest setback in hiring intentions in the Adecco survey, and the modestly accelerated fall in Rightmove House Price Asking Prices. The latter is indubitably the most significant part as it become ever more evident that the BoE's haste in implementing its sledgehammer easing (see Stephen Lewis' Economic Insights ICYMI) has everything to do with banking sector concerns, primarily that most bank lending is secured on property of some description, and per se any sharper falls in property prices pose a potentially mortal threat to an already very fragile banking sector. The latter is both testament to a modus operandi in the sector that has in truth not changed for 150 years, and which regulatory reforms has done nothing to change. But having regulated other income generating activities into near non-existence, this dependency poses an even larger threat to the sector, and of course to government finances, given the stakes that it still holds in the sector post GFC.

For the US, CPI and Industrial Production, a smattering of Fed speaker and the July FOMC minutes look to be the key items, with the ever volatile Housing Starts often very effective in terms of delivering a market jarring surprise. Energy Prices are expected to rein in headline CPI (with gasoline pump prices falling some $0.20 on the month), which would edge headline CPI down to 0.9%; however core CPI is expected (as ever) to rise 0.2% m/m to leave y/y rate at 2.3%. The first of the August manufacturing surveys from the NY and Philly Fed are seen slightly higher relative to July, though neither are particularly good proxies for the sector as a whole, with July Industrial Production of rather more importance. The latter is expected to sustain a recently improving trend with a 0.3% m/m, while Manufacturing Output is forecast to rise 0.2% m/m, marking the first back to back m/m rises since March/April 2015, and by extension suggesting that the drag from the energy sector is now very clearly dissipating. The FOMC minutes are likely to highlight that while the door was left open for a September rate move, this was anything but a commitment, with a significant number of FOMC members still keen to see the headline PCE deflator running at much higher levels. The discussion on the economy will as ever be of interest, but will likely underline very divergent views, it will also be interesting to see if there was any discussion of the impact of the money market fund reform on USD LIBOR rates, and whether this effective tightening of monetary conditions is having any impact on the policy outlook. The August RBA policy meeting minutes are also due, which appear unlikely to offer much in the way of fresh insights above and beyond the Money Policy Statement, though it might shed some additional light on the RBA's on how effective further policy easing might be, particularly in light of the speech by the departing governor Mr Stevens.

from Marc Ostwald
 
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