Trading with point and figure

oil/wti near rez
334ohsm.gif
 
lookin like dollar could get support
oil down
take index..possibly
gbpjpy seems to move inverse to dxy
lets see what happens
 
- UK & central banks dominate schedule; digesting Williams, BoJ policy
split, Solid Oz GDP, German production slide, wider French Trade deficit;
awaiting UK Production, US Jolts, Beige Book, BoE MPC testimony;
German 10-yr sale and further deluge of corp bond issuance

- UK Industrial Production; seen slipping again, still more an unwind of
April surge than Brexit related; focus on NIESR GDP estimate thereafter

- UK MPC Testimony: more political Punch and Judy show than a discussion
of policy and economic outlook; Forbes comments of interest

- Fed Beige Book: perhaps more important in wake of ISM falls; focus on
optimism; Williams still sounding hawkish overnight despite ISMs

- Bank of Canada policy meeting: clearly on hold, and set to remain so
despite recent run of data; a lesson for other central banks about
communication?

- Table: Fed rate hike probabilities by meeting

..........................................................................

********************
** EVENTS PREVIEW **
********************

The UK and central banks are likely to be rather more of an influence on markets than today's run of statistics. The UK sees Industrial Production and the NIESR's June-August GDP estimate, while various BoE MPC members (Carney, Cunliffe, Forbes & McCafferty) testify on the latest Inflation Report and their package of easing measures. The overnight comments from SF Fed's Williams (overall relatively hawkish) precede this evening's Fed Beige, while central banks in Canada, Malaysia, Poland and Sweden are all expected to keep policy on hold, with particular interest in what Riksbank has to say about a marked slowdown in a broad array of Swedish growth indicators. In data terms, Australia's GDP came in slightly upwardly revised expectations for Q2 GDP, while China's FX Reserves data will doubtless spark the usual flurry of often very poorly informed hyperbole where the CNY is heading to. Germany's Industrial Production has proved to be as sluggish as the run of soft Factory Orders in recent months suggested, while the only other highlight on the schedule will likely be the July JOLTS Job Openings data. Outside of these items, there will doubtless be more written about the expected launch of the Apple iPhone 7 than all of the rest of today's events, while over in Germany another zero coupon government bond is on offer, with the zero cost of financing Germany's national debt allowing Mr Schaeuble to announce some small tax cuts for the 2017 Budget yesterday, even though he also managed to complain about interest rates being 'too low'. Be that as it may, the squeeze in Bunds and other G7 govt bond markets following the ISM fall means any concession for the sale has been wiped out, and thus raises the chance of another technically failed auction, given yields are close to their all-time lows. Nevertheless it is the seasonal jump in non-govt issuance which requires rather more attention, with more than EUR 6.0 Bln in Euro issuance and $22.6 Bln in USD launched and/or priced yesterday, with plenty more in the pipeline.

** U.K. - July Industrial Production / MPC testimony **
- The yo-yoing PMIs eminently offer no worthwhile evidence on what to anticipate from today's official Industrial Production & Manufacturing Output. The consensus looks for headline Production to slip 0.2% m/m after a 0.1% rise in June, and for Manufacturing Output to reprise June's -0.3% m/m, though this would still leave y/y rates running at a respectable, though certainly not robust 1.9% and 1.7% respectively; and this certainly fits with much of the anecdotal evidence that has noted heightened levels uncertainty due to the referendum, but actual output generally being very steady. The added complication is the extent to which a third m/m fall in Output to some extent still reflects the unwind of the Easter timing effect 2.4% m/m surge in April, which should serve as a warning to avoid over-interpretation, particular in respect of so-called Brexit effects, which in truth may only start to materialize in Q4. Be that as it may, one can certainly rest assured that the hardline Brexiters on the Treasury Select Committee will be hurling opprobrium at Carney & Co when they testify this afternoon. One can also expect Mr Carney to display the chutzpah of effectively claiming his pre-referendum warnings were correct, the August policy actions were right, and probably helped to effect the turn in sentiment in recent surveys, and then warn again of downside risks - all of which should be something of a red rag to a bull for the likes of Jacob Rees-Mogg. Be that as it may, it will be very interesting to see what the dissenting (to QE) Ms Forbes has to say. Be that as it may, this will still likely be more 'spectacle' than any form of sensible debate, or reasoned critique.

** U.S.A. - Fed Beige Book **
- In the wake of the two sharp falls in the August ISM surveys, the Beige Book will attract plenty of attention, even if the shift in the language deployed in the Beige Book is often rather more glacial in its shifts, than the 'crash, bang, wallop' of diffusion indices, which financial markets prefer for the obvious sharp reactions. A closer inspection of the Non-manufacturing ISM report (https://www.instituteforsupplymanagement.org/ISMReport/NonMfgROB.cfm?navItemNumber=12943) highlights that the very sharp shift was paced by those moving from higher to same in many of the indices, rather than lower. As with the UK PMI volatility, this again highlights the deficiencies of diffusion indices, above all from the aspect that higher, same and lower are so poorly defined and differentiated. For example, respondents may in some months define a 1% shift in Order flows as 'same', but in others signal a change, which is however not distinguished from a far more definitive 5% shift. Be that as it may, it will be a case of focussing on whether there is any evidence of echo of those ISM readings, above all in terms of business optimism on the forward outlook, as the November elections come increasingly into focus; though there seems little reason to expect much improvement in the two key drag areas: energy and agriculture. As ever a close eye will be kept on the extent to which skills shortages are putting upward pressure on wages, while price pressures seem likely to remain subdued. The comparison will be with the July 13 report, which is recapped below:
"Reports from the twelve Federal Reserve Districts indicate that economic activity continued to expand at a modest pace across most regions from mid-May through the end of June. Business contacts in Cleveland reported a steady level of activity, while Minneapolis reported that activity increased at a moderate pace. Labor market conditions remained stable as employment continued to grow modestly since the previous report and wage pressures remained modest to moderate. Price pressures remained slight. Consumer spending was generally positive but with some signs of softening. Manufacturing activity was mixed but generally improved across Districts. Real estate activity continued to strengthen, and banks reported overall increases in loan demand. Agricultural activity was mixed but generally improving. The natural resources and energy sector has remained weak. The outlook was generally positive across broad segments of the economy including retail sales, manufacturing, and real estate. Districts reporting on overall growth expect it to remain modest."

** Canada - Bank of Canada policy meeting **
- The Bank of Canada finds itself in a space, which the Bank of England occupied for many recent years, whereby markets are fully discounting a non-event, the more so given that there will be no forecast update, nor will there be a press conference. The BoC's very robust 'wait and see' signal, predicated on the current emphasis in overall policy terms being on the fiscal, rather than the monetary policy side. Be that as it may, against a different fiscal/monetary policy backdrop, it is worth noting that recent data, above all the weaker than expected Q2 GDP (in part offset by the June rebound), and the very sharp improvement in the Trade Balance and exports (though non-energy exports remain well down in year on year terms), would have had many market participants speculating about the timing of a potential BoC policy shift. That being the case, there is a lesson for other G7 central banks in terms of effective communication, even if the burden of having to work with a totally ineffective political fraternity does offer the latter a line of defence.


from Marc Ostwald
 
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