Riven By Obstinacy

Said Jay, in this challenging time
Our toolkit is truly sublime
It is our desire
More bonds to acquire
And alter the Fed’s paradigm

In contrast, the poor ECB
Is riven by obstinacy
Of Germans and Dutch
Who both won’t do much
To help save Spain or Italy

Is anybody else confused by the current market activity? Every day reveals yet another data point in the economic devastation wrought by government efforts to control the spread of Covid-19, and every day sees equity prices rally further as though the future is bright. In fairness, the future is bright, just not the immediate future. Equity markets have traditionally been described as looking forward between six months and one year. Based on anything I can see; it is going to take far more than one year to get global economies back to any semblance of what they were like prior to the spread of the virus. And yet, the S&P is only down 9% this year and less than 13% from its all-time highs set in mid-February. As has been said elsewhere, the economy is more than 13% screwed up!

Chairman Powell seems to have a pretty good understanding that this is going to be a long, slow road to recovery, especially given that we have not yet taken our first steps in that direction. This was evidenced by the following comment in the FOMC Statement, “The ongoing public health crisis will weigh heavily on economic activity, employment and inflation in the near term, and poses considerable risks to the economic outlook over the medium term.” (My emphasis.) And yet, we continue to see equity investors scrambling to buy stocks amid a great wave of FOMO. History has shown that bear markets do not end in one month’s time and I see no reason to believe that this time will be different. I don’t envy Powell or the Fed the tasks they have ahead of them.

So, let’s look at some of the early data as to just how devastating the response to Covid-19 has been around the world. By now, you are all aware that US GDP fell at a 4.8% annualized rate in Q1, its sharpest decline since Q4 2008, the beginning of the GFC. But in truth, compared to the European data released this morning, that was a fantastic performance. French Q1 GDP fell 5.8%, which if annualized like the US reports the data, was -21.0%. Spanish Q1 GDP was -5.2% (-19.0% annualized), while Italy seemed to have the best performance of the lot, falling only 4.8% (-17% annualized) in Q1. German data is not released until the middle of May, but the Eurozone, as a whole, printed at -3.8% Q1 GDP. Meanwhile, German Unemployment spiked by 373K, far more than forecast and the highest print in the history of the series back to 1990. While these were the highlights (lowlights?), the story is uniformly awful throughout the continent.

With this in mind, the ECB meets today and is trying to determine what to do. Last month they created the PEPP, a €750 billion QE program, to support the Eurozone economy by keeping member interest rates in check. But that is not nearly large enough. After all, the Fed and BOJ are at unlimited QE while the BOE has explicitly agreed to monetize £200 billion of debt. In contrast, the ECB’s actions have been wholly unsatisfactory. Perhaps the best news for Madame Lagarde is the German employment report, as Herr Weidmann and Frau Merkel may finally recognize that the situation is really much worse than they expected and that more needs to be done to support the economy. Remember, too, that Germany has been the euro’s biggest beneficiary by virtue of the currency clearly being weaker than the Deutschemark would have been on its own and giving their export industries an important boost. (I am not the first to notice that the euro’s demise could well come from Germany, Austria and the Netherlands deciding to exit in order to shed all responsibility for the fiscal problems of the PIGS. But that is a discussion for another day.)

The consensus is that the ECB will not make any changes today, despite a desperate need to do more. One of the things holding them back is an expected ruling by the German Constitutional Court regarding the legality of the ECB’s QE programs. This has been a bone of contention since Signor Draghi rammed them through in 2012, and it is not something the Germans have ever forgiven. With debt mutualization off the table as the Teutonic trio won’t even consider it, QE is all they have left. Arguably, the ECB should increase the PEPP by €1 trillion or more in order to have a truly positive impact. But thus far, Madame Lagarde has not proven up to the task of forcing convincing her colleagues of the necessity of bold action. We shall see what today brings.

Leading up to the ECB announcement and the ensuing press briefing, Asian equity markets followed yesterday’s US rally higher, although early gains from Europe have faded since the release of the sobering GDP data. US futures have also given back early gains and remain marginally higher at best. Bond markets are generally edging higher, with yields across the board (save Italy) sliding a few bps, and oil prices continue their recent rebound, although despite some impressive percentage moves lately, WTI is trading only at $17.60/bbl, still miles from where it was at the beginning of March.

The dollar, in the meantime, remains under pressure overall with most G10 counterparts somewhat firmer this morning. The leaders are NOK (+0.45%) on the strength of oil’s rally, and SEK (+0.4%) which seems to simply be continuing its recent rebound from the dog days of March. Both Aussie and Kiwi are modestly softer this morning, but both of those have put in stellar performances the past few days, so this, too, looks like position adjustments.

In the EMG bloc, IDR was the overnight star, rallying 2.8% alongside a powerful equity rally there, as investors who had been quick to dump their holdings are back to hunting for yield and appreciation opportunities. As markets worldwide continue to demonstrate a willingness to look past the virus’s impact, there are many emerging markets that could well see strength in both their currencies and stock markets. The next best performers were MYR (+1.0%) and INR (+0.75%), both of which also responded to a more robust risk appetite. As LATAM has not yet opened, a quick look at yesterday’s price action shows BRL having continued its impressive rebound, higher by 3.0%, but strength too in CLP (+2.9%), COP (+1.2%) and MXN (2.5%).

We get more US data this morning, led by Initial Claims (exp 3.5M), Continuing Claims (19.476M), Personal Income (-1.5%), Personal Spending (-5.0%) and Core PCE (1.6%) all at 8:30. Then, at 9:45 Chicago PMI (37.7) is due to print. As can be seen, there is no sign that things are doing anything but descending yet. I think Chairman Powell is correct, and there is still a long way to go before things get better. While holding risk seems comfortable today, look for this to turn around in the next few weeks.

Good luck and stay safe
Adf

 

How Far Did It Sink?

This morning the data we’ll see
Is highlighted by GDP
How far did it sink?
And is there a link
Twixt that and the FOMC?

Which later today will convene
And talk about Covid-19
What more can they do
To help us all through
The havoc that we all have seen

Market activity has been somewhat mixed amid light volumes as we await the next two important pieces of information to add to the puzzle. Starting us off this morning will be the first look at Q1 GDP in the US. Remember, the virus really didn’t have an impact on the US economy until the first week of March, although the speed of its impact, both on markets and the broad economy were unprecedented. A few weeks ago, I mentioned that I created a very rough model to forecast Q1 GDP and came up with a number of -13.6% +/- 2%. This was based on the idea that economic activity was cut in half for the last three weeks of the month and had been reduced by 25% during the first week. My model was extremely rough, did not take into account any specific factors and was entirely based on anecdotal evidence. After all, sheltering in home, it is exceedingly difficult to survey actual activity. As it turns out, my ‘forecast’ is much more bearish than the professional chattering classes which, according to the Bloomberg survey, shows the median expectation is for a reading of -4.0%, with forecasts ranging from 0.0% to -10.0%. Ultimately, a range of forecasts this wide tells us that nobody has any real idea what this number is going to look like.

Too, remember that while things have gotten worse throughout April, as much of the nation has been locked down, the latest headlines highlight how many places will be easing restrictions in the coming days and weeks. So, it appears that the worst of the impact will straddle March and April, an inconvenient time for quarterly reporting. In the end, the issue for markets is just how much devastation is already reflected in prices and perhaps more importantly, how quick of a recovery is now embedded in the price. It is this last point which gives me pause as to the current levels in equity markets, as well as the overall risk framework. The evidence points to a strong investor belief that the trillions of dollars of support by central banks and governments around the world is going to ensure that V-shaped rebound. If that does not materialize (and I, for one, am extremely skeptical it will), then a repricing of risk is sure to follow.

The other key feature today is the FOMC meeting, with the normal schedule of a 2:00 statement release and a 2:30 press conference. There are no updated forecasts due to be released, and the general consensus is that the Fed is unlikely to add any new programs to the remarkable array of programs already initiated. Arguably, the biggest question for today’s meeting is will they try to clarify their forward guidance regarding the future path of rates and policy or is it still too early to change the view that policy will remain accommodative until the economy weather’s the storm.

While hard money advocates bash the Fed and many complain that their array of actions has actually crossed into illegality, Chairman Powell and his crew are simply trying to alleviate the greatest disruption any economy has ever seen while staying within a loose interpretation of the previous guidelines. Powell did not create the virus, nor did he spend a decade as Fed chair allowing significant financial excesses to be built up. For all the grief he takes, he is simply trying to clean up a major mess that he inherited. But market pundits make their living on being ‘smarter’ than the officials about whom they write, so don’t expect the commentary to change any time soon.

With that as prelude, a survey of this morning’s activity shows that equity markets in Europe are generally slightly higher, although a few, France and Switzerland, are in the red. Interestingly, Italy’s FTSE MIB is higher by 0.4% despite the surprise move by Fitch to cut Italy’s credit rating to BBB-, the lowest investment grade rating and now the same as Moody’s rating. S&P seems to have succumbed to political pressure last week and left their rating one notch higher at BBB although with a negative outlook. Though Italian stocks are holding in, BTP’s (Italian government bonds) have fallen this morning with yields rising 4bps. In fact, a conundrum this morning is the fact that the bond market is clearly in risk-off mode, with Treasury and bund yields lower (2bp and 3bp respectively) while PIGS yields are all higher. Meanwhile, European equities are performing fairly well, US equity futures are all higher by between 0.5%-1.0%, and the dollar is softer virtually across the board. These latter signal a more risk-on scenario.

Speaking of the dollar, it is lower vs. all its G10 counterparts except the pound this morning although earlier gains of as much as 1.0% by AUD and NZD have been cut by more than half as NY walks in. This currency strength is despite weaker than expected Confidence data from the Eurozone, although with an ECB meeting tomorrow, market participants are beginning to bet on Madame Lagarde adding to the ECB’s PEPP. Meanwhile, CAD and NOK seem to be benefitting from a small rebound in the price of oil, although that seems tenuous at best given the fear of holding the front contract after last week’s dip into negative territory on the previous front contract.

EMG currencies are also uniformly stronger this morning, led by IDR (+1.0%) after a well-received government bond issuance increased confidence the country will be able to get through the worst of the virus’ impact. We are also seeing ZAR (+0.9%) firmer on the modestly increased risk appetite, and MXN (+0.7%) follow yesterday’s rally of nearly 1.7% as the worst fears over a collapse in LATAM activity dissipate. Yesterday also saw Brazil’s real rebound 2.75%, which is largely due to aggressive intervention by the central bank. The background story in the country continues to focus on the political situation with the resignation of Justice Minister Moro and yesterday’s Supreme Court ruling that an investigation into President Bolsonaro could continue regarding his firing of the police chief. However, BRL had fallen nearly 14% in the previous two weeks, so some rebound should not be surprising. In fact, on a technical basis, a move back to 5.40 seems quite viable. However, in the event the global risk appetite begins to wane again, look for BRL to once again underperform.

Overall, this mixed session seems to be more likely to evolve toward a bit of risk aversion than risk embrasure unless the Fed brings us something new and unexpected. Remember, any positive sign from the GDP data just means that Q2 will be that much worse, not that things are better overall.

Good luck and stay safe
Adf

FOMC Tryst

While problems in China persist
And risk is still on the blacklist
More talk is now turning
To Powell concerning
Tomorrow’s FOMC tryst

The coronavirus remains the primary topic of conversation amongst the economic and financial community as analysts and pundits everywhere are trying to estimate how large the impact of this spreading disease will be on economic output and growth. The statistics on the ground continue to worsen with more than 100 confirmed deaths from a population of over 4500 confirmed cases. I fear these numbers will get much worse before they plateau. And while I know that science and technology are remarkable these days, the idea that a treatment can be found in a matter of weeks seems extremely improbable. Ultimately, this is going to run its course before there is any medication available to address the virus. It is this last idea which highlights the importance of China’s actions to prevent travel in the population thus reducing the probability of spreading. Unfortunately, the fact that some 5 million people left the epicenter in the past weeks, before the problem became clear, is going to make it extremely difficult to really stop its spread. Today’s news highlights how Hong Kong and Macau are closing their borders with China, and that there are now confirmed cases in France, Germany, Canada, Australia and the US as well as many Asian nations.

With this ongoing, it is no surprise that risk appetite, in general, remains limited. So the Asian stock markets that were open last night, Nikkei (-0.6%), KOSPI (-3.1%), ASX 200 (-1.35%) all suffered. However, European markets, having sold off sharply yesterday, have found some short term stability with the DAX unchanged, CAC +0.15% and FTSE 100 +0.2%. As to US futures, they are pointing higher at this hour, looking at 0.2%ish gains across the three main indices.

Of more interest is the ongoing rush into Treasury bonds with the 10-year yield now down to 1.57%, a further 3bp decline after yesterday’s 7bp decline. In fact, since the beginning of the year, the US 10-year yield has declined by nearly 40bps. That is hardly the sign of strong growth in the underlying economy. Rather, it has forced many analysts to continue to look under the rocks to determine what is wrong in the economy. It is also a key feature in the equity market rally that we have seen year-to-date, as lower yields continue to be seen as a driver of the TINA mentality.

But as I alluded to in my opening, tomorrow’s FOMC meeting is beginning to garner a great deal of attention. The first thing to note is that the futures market is now pricing in a full 25bp rate cut by September, in from November earlier this month, with the rationale seeming to be the slowing growth as a result of the coronavirus’s spread will require further monetary stimulus. But what really has tongues wagging is the comments that may come out regarding the Fed’s review of policy and how they may adjust their policy toolkit going forward in a world of permanently lower interest rates and inflation.

One interesting hint is that seven of the seventeen FOMC members have forecast higher than target inflation in two years’ time, with even the most hawkish member, Loretta Mester, admitting that her concerns over incipient inflation on the back of a tight labor market may have been misplaced, and that she is willing to let things run hotter for longer. If Mester has turned dovish, the end is nigh! The other topic that is likely to continue to get a lot of press is the balance sheet, as the Fed continues to insist that purchasing $60 billion / month of T-bills and expanding the balance sheet is not QE. The problem they have is that whatever they want to call it, the market writ large considers balance sheet expansion to be QE. This is evident in the virtual direct relationship between the growth in the size of the balance sheet and the rally in the equity markets, as well as the fact that the Fed feels compelled to keep explaining that it is not QE. (For my money, it is having the exact same impact as QE, therefore it is QE.) In the end, we will learn more tomorrow afternoon at the press conference.

Turning to the FX markets this morning, the dollar continues to be the top overall performer, albeit with today’s movement not quite as substantial as what we saw yesterday. The pound is the weakest currency in the G10 space after CBI Retailing Reported Sales disappointed with a zero reading and reignited discussion as to whether Governor Carney will cut rates at his last meeting on Thursday. My view remains that they stay on the sidelines as aside from this data point, the recent numbers have been pretty positive, and given the current level of the base rate at 0.75%, the BOE just doesn’t have much room to move. But that was actually the only piece of data we saw overnight.

Beyond the pound, the rest of the G10 is very little changed vs. the dollar overnight. In the EMG bloc, we saw some weakness in APAC currencies last night with both KRW and MYR falling 0.5%, completely in sync with the equity weakness in the region. On the positive side this morning, both CLP and RUB have rallied 0.5%, with the latter benefitting on expectations Retail Sales there rose while the Chilean peso appears to be seeing some profit taking after a gap weakening yesterday morning.

Yesterday’s New Home Sales data was disappointing, falling back below 700K despite falling mortgage rates. This morning we see Durable Goods (exp 0.4%, -ex Transport 0.3%), Case Shiller Home Prices (2.40%) and Consumer Confidence (128.0). At this stage of the economic cycle, I think the confidence number will have more to tell us than Durable Goods. Remarkably, Confidence remains quite close to the all-time highs seen during the tech bubble. But it bodes well for the idea that any slowdown in growth in the US economy is likely to be muted. In the end, while the US economy continues to motor along reasonably well, nothing has changed my view that not-QE is going to undermine the value of the dollar as the year progresses.

Good luck
Adf

Truly a Curse

In China, it’s gotten much worse
This virus that’s truly a curse
How fast will it spread?
And how many dead?
Ere treatment helps it to disperse.

Despite the fact that we have two important central bank meetings this week, the Fed and the BOE, the market is focused on one thing only, 2019-nCoV, aka the coronavirus. The weekend saw the number of confirmed infections rise to more than 2800, with 81 deaths as of this moment. In the US, there are 5 confirmed cases, but the key concern is the news that prior to the city of Wuhan (the epicenter of the outbreak) #fom locked down, more than 5 million people left town at the beginning of the Lunar New Year holiday. While I am not an epidemiologist, I feel confident in saying that this will seem worse before things finally settle down.

And it’s important to remember that the reason the markets are responding has nothing to do with the human tragedy, per se, but rather that the economic impact has the potential to be quite significant. At this point, risk is decidedly off with every haven asset well bid (JPY +0.35%, 10-year Treasury yields -7bps, gold +0.8%) while risk assets have been quickly repriced lower (Nikkei -2.0%, DAX -2.0%, CAC -2.1%, FTSE 100 -2.1%, DJIA futures -1.4%, SPX futures -1.4%, WTI -3.0%).

Economists and analysts are feverishly trying to model the size of the impact to economic activity. However, that is a Sisyphean task at this point given the combination of the recency of the onset of the disease as well as the timing, at the very beginning of the Lunar New year, one of the most active commercial times in China. The Chinese government has extended the holiday to February 2nd (it had been slated to end on January 30th), and they are advising businesses in China not to reopen until February 9th. And remember, China was struggling to overcome a serious slowdown before all this happened.

It should be no surprise that one of the worst performing currencies this morning is the off-shore renminbi, which has fallen 0.8% as of 7:00am. In fact, I think this will be a key indicator of what is happening in China as it is the closest thing to a real time barometer of sentiment there given the fact that the rest of the Chinese financial system is closed. CNH is typically a very low volatility currency, so a movement of this magnitude is quite significant. In fact, if it continues to fall sharply, I would not be surprised if the PBOC decided to intervene in order to prevent what it is likely to believe is a short-term problem. There has been no sign yet, but we will watch carefully.

And in truth, this is today’s story, the potential ramifications to the global economy of the spreading infection. With that in mind, though, we should not forget some other featured news. The weekend brought a modestly surprising outcome from Italian regional elections, where Matteo Salvini, the populist leader of the League, could not overcome the history of center-left strength in Emilia-Romagna and so the current coalition government got a reprieve from potential collapse. Salvini leads in the national polls there, and the belief was if his party could win the weekend, it would force the governing coalition to collapse and new elections to be held ushering in Salvini as the new PM. However, that was not to be. The market response has been for Italian BTP’s (their government bonds) to rally sharply, with 10-year yields tumbling 18bps. This has not been enough to offset the risk-off mentality in equity markets there, but still a ray of hope.

We also saw German IFO data significantly underperform expectations (Business Climate 95.9, Expectations 92.9) with both readings lower than the December data. This is merely a reminder that things in Germany, while perhaps not accelerating lower, are certainly not accelerating higher. The euro, however, is unchanged on the day, as market participants are having a difficult time determining which currency they want to hold as a haven, the dollar or the euro. Elsewhere in the G10, it should be no surprise that AUD and NZD are the laggards (-0.85% and -0.65% respectively) as both are reliant on the Chinese economy for economic activity. Remember, China is the largest export destination for both nations, as well as the source of a significant amount of inbound tourism. But the dollar remains strong throughout the space.

Emerging markets are showing similar activity with weakness throughout the space led by the South African rand (-1.0%) on the back of concerns over the disposition of state-owned Eskom Holdings, the troubled utility, as well as the general macroeconomic concerns over the coronavirus outbreak and its ultimate impact on the South African economy. Meanwhile, the sharp decline in the price of oil has weighed on the Russian ruble, -0.9%.

As I mentioned above, we do have two key central bank meetings this week, as well as a significant amount of data as follows:

Today New Home Sales 730K
  Dallas Fed Manufacturing -1.8
Tuesday Durable Goods 0.5%
  -ex Transport 0.3%
  Case Shiller Home Prices 2.40%
  Consumer Confidence 128.0
Wednesday Advance Goods Trade Balance -$65.0B
  FOMC Rate Decision 1.75% (unchanged)
Thursday BOE Rate Decision 0.75% (unchanged)
  Initial Claims 215K
  GDP (Q4) 2.1%
Friday Personal Income 0.3%
  Personal Spending 0.3%
  Core PCE Deflator 1.6%
  Chicago PMI 49.0
  Michigan Sentiment 99.1

Source: Bloomberg
Regarding the BOE meeting, the futures market is back to pricing in a 60% probability of a rate cut, up from 47% on Friday, which seems to be based on the idea that the coronavirus is going to have a significant enough impact to require further monetary easing by central banks. As to the Fed, there is far more discussion about what they may be able to do in the future as they continue to review their policies, rather than what they will do on Wednesday. Looking at the spread of data this week, we should get a pretty good idea as to whether the pace of economic activity in the US has changed, although forecasts continue to be for 2.0%-2.5% GDP growth this year.

And that’s really it for the day. Until further notice, the growing epidemic in China remains the number one story for all players, and risk assets are likely to remain under pressure until there is some clarity as to when it may stop spreading.

Good luck
Adf

Throw Her a Bone

Next week at the ECB meeting
We’re sure to hear Christine entreating
The whole Eurozone
To throw her a bone
And spend more, lest growth start retreating

In England, though, it’s now too late
As recent releases all state
The ‘conomy’s slowing
And Carney is knowing
Come month end he’ll cut the base rate

The dollar is finishing the week on a high note as it rallies, albeit modestly, against virtually the entire G10 space. This is actually an interesting outcome given the ongoing risk-on sentiment observed worldwide. For instance, equity markets in the US all closed at record highs yesterday, and this morning, European equities are also trading at record levels. Asia, not wanting to be left out, continues to rally, although most markets in APAC have not been able to reach the levels seen during the late 1990’s prior to the Asian crisis and tech bubble. At the same time, we continue to see Treasury and Bund yields edging higher as yield curves steepen, another sign of a healthy risk appetite. Granted, commodity prices are not uniformly higher, but there are plenty that are, notably iron ore and steel rebar, both crucial signals of economic growth.

Usually, in this type of market condition, the dollar tends to decline. This is especially so given the lack of volatility we have observed encourages growth in carry trades, with investors flocking to high yield currencies like MXN, IDR, BRL and ZAR. However, it appears that at this juncture, the carry trade has not yet come back into favor, as that bloc of currencies has shown only modest strength, if any, hardly the signal that investor demand has increased.

This leaves us with an unusual situation where the dollar is reasonably well-bid despite the better risk appetite. Perhaps investors are buying dollars to jump on board the US equity train, but I suspect there is more to the movement than this. Investigations continue.

Narrowing our focus a bit more, it is worthwhile to consider the key events upcoming, notably next week’s ECB and BOJ meetings and the following week’s FOMC and BOE meetings. Interestingly, based on current expectations, the Fed meeting is likely to be far less impactful than either the ECB or BOE.

First up is the BOJ, where there is virtually no expectation of any policy changes, and in fact, that is true for the entire year. With the policy rate stuck at -0.10%, futures markets are actually pricing in a 5bp tightening by the end of the year. Certainly, Japan has gone down the road of increased fiscal stimulus, and if you recall last month’s outcome, the BOJ essentially admitted that they would not be able to achieve their 2.0% inflation target during any forecastable timeline. With that is the recent history, and given that inflation remains either side of 1.0%, the BOJ is simply out of bullets, and so will not be doing anything.

The ECB, however, could well be more interesting as the market awaits their latest thoughts on the policy review. Madame Lagarde has made a big deal about how they are going to review procedures and policy initiatives to see if they are designed to meet their goals. Some of the things that have been mooted are a change in the inflation target from “close to but below 2.0%” to either a more precise target or a target range, like 1.5% – 2.5%. Of even more interest is the fact that they have begun to figure out that their current inflation measures are inadequate, as they significantly underweight housing expense, one of the biggest expenses for almost every household. Currently, housing represents just 4% of the index. As a contrast, in the US calculation, housing represents about 41% of the index! And the anecdotes are legion as to how much housing costs have risen throughout European cities while the ECB continues to pump liquidity into markets because they think inflation is missing. Arguably, that has the potential to change things dramatically, because a revamped CPI calculation could well inform that the ECB has been far too easy in policy and cause a fairly quick reversal. And that, my friends, would result in a much higher euro. Today however, the single currency has fallen prey to the dollar’s overall strength and is lower by 0.25%.

As I mentioned, I don’t think the FOMC meeting will be very interesting at all, as there is a vanishingly small chance they change policy given the economy keeps chugging along and inflation has been fairly steady, if not rising to their own 2.0% target. The BOE meeting, however, has the chance to be much more interesting. This morning’s UK Retail Sales data was massively disappointing, with December numbers printing at -0.8%, -0.6% excluding fuel. This was hugely below the expected outcomes of +0.8% and +0.6% respectively. Apparently, Boris’s electoral victory did not convince the good people of England to open their wallets. And remember, this was during Christmas season, arguably the busiest retail time of the year. It can be no surprise that the futures market is now pricing a 75% chance of a rate cut and remember, earlier this week we heard from three different BOE members that cutting rates was on the table. The pound, which has been rallying for the entire week has turned around and is lower by 0.2% this morning with every chance that this slide continues for the next week or two until the meeting crystalizes the outcome.

The other noteworthy news was Chinese data released last night, which showed that GDP, as expected, grew at 6.0%, Retail Sales also met expectations at 8.0%, while IP (+6.9%) and Fixed Asset Investment (+5.4%) were both a bit better than forecast. The market sees this data as proof that the economy there is stabilizing, especially with the positive vibe of the just signed phase one trade deal. The renminbi has benefitted, rallying a further 0.3% on the session, and has now gained 4.6% since its weakest point in early September 2019. This trend has further to go, of that I am confident.

On the data front this morning, we have Housing Starts (exp 1380K), Building Permits (1460K), IP (-0.2%), Capacity Utilization (77.0%), Michigan Sentiment (99.3) and JOLT’s Job Openings (7.25M). So plenty of news, but it is not clear it is important enough to change opinions in the FX market. As such, I expect that today’s dollar strength is likely to continue, but certainly not in a major way.

Good luck and good weekend
Adf

What’s Most Feared

For almost two days it appeared
That havens were to be revered
But with rates so low
Investors still know
That selling risk is what’s most feared

By yesterday afternoon it had become clear that market participants were no longer concerned over any immediate retaliation by Iran. While there have been a number of comments and threats, the current belief set is that anything that occurs is far more likely to be executed via Iranian proxies, like Hezbollah, rather than any direct attack on the US. And so as the probability of a hot war quickly receded in the minds of the global investment community, all eyes turned back toward what is truly important…central bank largesse!

As I briefly mentioned yesterday, there was a large gathering of economists, including many central bankers past and present, this past weekend in San Diego. The issue that seemed to generate the most interest was the idea of negative interest rates and whether their implementation had been successful, and more importantly, whether they ever might appear as part of the Fed’s policy toolkit.

Chairman Powell has made clear a number of times that there is no place for negative rates in the US. This sentiment has been echoed by most of the current FOMC membership, even the most dovish members like Kashkari and Bullard. And since the US economy is continuing to grow, albeit pretty slowly, it seems unlikely that this will be more than an academic exercise anytime soon. However, a paper presented by some San Francisco Fed economists described how negative rates would have been quite effective during the throes of the financial crisis in 2008-2009, and that stopping at zero likely elongated the pain. Ironically, former Fed chair Bernanke also presented a paper saying negative rates should definitely be part of the toolkit going forward. This is ironic given he was the one in charge when the Fed went to zero and had the opportunity to go negative at what has now been deemed the appropriate time. (Something I have observed of late is that former Fed chairs are quite adept at describing things that should be done by the Fed, but were not enacted when they were in the chair. It seems that the actuality of making decisions, rather than sniping from the peanut gallery, is a lot harder than they make out.)

At any rate, as investors and analysts turn their focus away from a potential war to more mundane issues like growth and earnings, the current situation remains one of positive momentum. The one thing that is abundantly clear is that the central bank community is not about to start tightening policy anytime soon. In fact, arguably the question is when the next bout of policy ease is implemented. The PBOC has already cut the RRR, effective yesterday, and analysts everywhere anticipate further policy ease from China going forward as the government tries to reignite higher growth. While Chairman Powell has indicated the Fed is on hold all year, the reality is that they are continuing to regrow the balance sheet to the tune of $60 billion / month of outright purchases as well as the ongoing repo extravaganza, where yesterday more than $76 billion was taken up. And although this is more of a stealth easing than a process of cutting interest rates, it is liquidity addition nonetheless. Once again, it is this process, which shows no signs of abating, which leads me to believe that the dollar will underperform all year.

Turning to today’s session we have seen equity markets climb around the world following the US markets’ turn higher yesterday afternoon. Bond prices are little changed overall, with 10-year Treasury yields right at 1.80%, and both oil and gold have edged a bit lower on the day. Certainly, to the extent that there was fear of a quick reprisal from Iran, the oil market has discounted that activity dramatically.

Meanwhile, the dollar is actually having a pretty good session today, rallying against the entire G10 space despite some solid data from the Eurozone, and performing well against the bulk of the EMG bloc. The dollar’s largest gains overnight have come vs. the Australian dollar, which is down nearly 1.0% this morning after weak employment data (ANZ Job Adverts -6.7%) reignited fears that the RBA was going to be forced to cut rates further in Q1. But the greenback has outperformed the entire G10 space. The other noteworthy data were Eurozone Retail Sales (+1.0%) and CPI (+1.3% headline and core) with the former beating expectations but the latter merely meeting expectations and the core data showing no impetus toward the ECB’s ‘just below 2.0%’ target. Alas, the euro is lower by 0.15% this morning, dragging its tightly linked EEMEA buddies down by at least that much, and in some cases more. Finally, the pound has dipped 0.3%, but given the dearth of data, that seems more like a simple reaction to its inexplicable two-day rally.

In the EMG space, APAC currencies were the clear winners, with CNY rallying 0.5% as investment flows picked up with one of this year’s growing themes being that China is going to rebound sharply, especially with the trade situation seeming to settle down. It can be no surprise that both KRW and IDR, both countries that rely on stronger Chinese growth for their own growth, have rallied by similar amounts this morning. Meanwhile, EEMEA currencies have been under pressure, as mentioned above, despite the little data released (Hungarian and Romanian Retail Sales) being quite robust.

As to this morning’s session we get our first data of the week with the Trade Balance (exp -$43.6B), ISM Non-Manufacturing (54.5) and Factory Orders (-0.8%). Mercifully, there are no Fed speakers scheduled, so my sense is the market will be focused on the ISM data as well as the equity market. As things currently stand, it is all systems go for a stock market rally and assuming the ISM data simply meets expectations, the narrative is likely to shift toward stabilizing US growth. Of course, with the Fed pumping money into the economy in the background, that should be the worst case no matter what. FWIW it seems the dollar’s rally is a touch overdone here. My sense is that we are going to see it give back some of this morning’s gains as the session progresses.

Good luck
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Well Calibrated

Our policy’s “well calibrated”
Though some of us are still frustrated
It’s time to resort
To fiscal support
Since our balance sheet’s so inflated

While market activity has been relatively benign this morning, there are two stories that have consistently been part of the conversation; the FOMC Minutes and the latest trade information. Regarding the former, it seems there was a bit more dissent than expected regarding the Fed’s last rate cut, as while there were only two actual dissenters, others were reluctant rate cutters. With that said, the term “well calibrated” has been bandied about by more than one Fed member as a description of where they see policy right now. And this aligns perfectly with the idea that the Fed is done for a while which is what Powell signaled at the press conference and what essentially every Fed speaker since has confirmed. Regarding the balance of risks, despite what has been a clear uptick in investor sentiment over the past month, the Fed continues to point to asymmetry with the downside risks being of more concern. Recall, the futures markets are not looking for any policy adjustments at the December meeting, and in fact, are pricing just a 50% chance of a cut by next June. One final thing, the feeling was unanimous on the committee that there was no place for negative interest rates in the US. If (when) the economic situation deteriorates that much, they were far more likely to utilize policies like yield curve control (we know how well that worked for Japan) and forward guidance rather than taking the leap to negative rates.

Ultimately, the market read the Minutes and decided that while the Fed is on hold, the next move is far likelier to be a rate cut than a rate hike and thus yesterday’s early risk-off attitude was largely moderated by the end of the day. In fact, this morning, we are seeing a nascent risk-on view, although given how modest movement has been in any market; I am hesitant to describe it in that manner.

The other story that reinserted itself was the US-China trade negotiations, where Chinese vice –premier Liu He, the chief negotiator, explained that he was “cautiously optimistic” about progress and that he invited Messr’s Mnuchin and Lighthizer to Beijing next week to continue the dialog. While he admitted that he was confused about US demands, it does appear that the Chinese are pretty keen to get a deal done.

One other wrinkle is the fact that the Hong Kong support bill in Congress has been approved virtually unanimously, and all indications are that President Trump is going to sign it. While it is clear the Chinese are not happy about that, it seems a bit of an overreaction. After all, the bill simply says that Hong Kong’s special economic status will be reviewed annually, and that any direct military intervention would be met with sanctions. I have to believe that if the PLA did intervene directly to quell the unrest, even without this law in place, the US would respond in some manner that would make the Chinese unhappy. As to an annual review, the onus is actually on the US, although it could certainly add a new pressure point on China in the event they decide to convert from ‘one country, two systems’, to ‘one country, one system’. My take on the entire process is the Chinese are feeling more and more pressure on the economy because of the current tariff situation, and realize that they need to change that situation, hence the new invitation to continue the talks.

With that as our backdrop, a look at markets this morning shows the dollar is very modestly softer pretty much across the board. The largest gainer overnight has been the South African rand, which has rallied 0.5% ahead of the SARB meeting. While markets are generally expecting no policy changes, yesterday’s surprisingly low CPI data (3.7%, exp 3.9%) has some thinking the SARB may cut rates from their current 6.5% level and help foster further investment. On the flip side, South Korea’s won has been the big loser, falling 0.7% overnight after export data showed a twelfth consecutive month of declines and implied prospects for a pickup are limited. Arguably South Korea has been the nation most impacted by the US-China trade war. And one last thing, the Chilean peso, which has been under significant pressure for the past two weeks, is once again opening weaker, down 0.4% to start the day. In the past two weeks the peso has tumbled nearly 7%, and this despite the fact that the Chilean government has been extremely responsive to the protest movement, agreeing to rewrite the constitution to address many of the concerns that have come to light.

As to the G10, there is nothing to discuss. Movement has been extremely modest and data has been limited. Perhaps the one interesting item is that Jeremy Corbyn has released the Labour manifesto for the election and it focuses on raising taxes in numerous different ways and on numerous different parties. Certainly in the US that is typically not the path that wins elections, but perhaps in the UK it is different. At any rate, the market seems to think that this will hurt Corbyn’s chances, something it really likes, and the pound has edged up 0.25% this morning.

On the data front, this morning brings Initial Claims (exp 218K), Philly Fed (6.0), Leading Indicators (-0.1%) and finally Existing Home Sales (5.49M). Of this group, I expect that Philly Fed is the most likely to have an impact, but keep an eye on the claims data. Remember, last week it jumped to 225K, its highest since June, and another high print may start to indicate that the labor market, one of the key pillars of economic support, is starting to strain a little. We also hear from two Fed speakers, the hawkish Loretta Mester and the dovish Neal Kashkari, but again, it feels like the Fed is pretty comfortably on hold at this point.

Lacking a catalyst, it seems to me that the dollar is likely to have a rather dull session. Equity futures are pointing ever so slightly lower, but are arguably unchanged at this point. My sense is that this afternoon, markets will be almost exactly where they are now…unchanged.

Good luck
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Get Out of My Face!

“The economy’s in a good place”
Which means we can slacken the pace
Of future rate cuts
No ifs, ands or buts
So Donald, ‘get out of my face’!

Reading between the lines of yesterday’s FOMC statement and the Powell press conference, it seems abundantly clear that Chairman Powell is feeling pretty good about himself and what the Fed has achieved. He was further bolstered by the data yesterday which showed GDP grew at a 1.9% clip in Q3, far better than the expected 1.6% pace and that inflation, as measured by the GDP deflator, rose 2.2%, also clearly around the levels that the Fed seeks. In other words, although he didn’t actually say, ‘mission accomplished’, it is clearly what he wants everybody to believe. The upshot is that he was able to convince the market that the Fed has no more reason to cut rates anytime soon. But more importantly from a market perspective, he explained at the press conference that the bar was quite high for the Fed to consider raising rates again. And that was all he needed to say for equity markets to launch to yet another new high, and for the dollar, which initially had rallied on the FOMC statement, to turn tail and fall pretty sharply. And the dollar remains under pressure this morning with the euro rising a further 0.15%, the pound a further 0.45% and the yen up 0.5%.

Of course, the pound has its own drivers these days as the UK gears up for its election on December 12. According to the most recent polls, the Tories lead the race with 34%, while Labour is at 26%, the Lib-Dems at 19% and the Brexit party at 12%. After that there are smaller parties like the DUP from Northern Ireland and the Scottish National Party. The most interesting news is that the Brexit party is allegedly considering withdrawing from a number of races in order to allow the Tories to win and get Brexit completed. And after all, once Brexit has been executed, there really is no need for the Brexit party, and so its voting bloc will have to find a home elsewhere.

Something that has been quite interesting recently is the change in tone from analysts regarding the pound’s future depending on the election. While on the surface it seems that the odds of a no-deal Brexit have greatly receded, there are a number of analysts who point out that a strong showing by the Brexit party, especially if Boris cannot manage a majority on his own, could lead to a much more difficult transition period and bring that no-deal situation back to life. As well, on the other side of the coin, a strong Lib-Dem showing, who have been entirely anti-Brexit and want it canceled, could result in a much stronger pound, something I have pointed out several times in the past. Ultimately, though, from my seat 3500 miles away from the action, I sense that Boris will complete his takeover of the UK government, complete Brexit and return to domestic issues. And the pound will benefit to the tune of another 2%-3% in that scenario.

The recent trade talks, called ‘phase one’
According to both sides are done
But China’s now said
That looking ahead
A broad deal fails in the long run

A headline early this morning turned the tide on markets, which were getting pretty comfortable with the idea that although the Fed may not be cutting any more, they had completely ruled out raising rates. But the Chinese rained on that parade as numerous sources indicated that they had almost no hope for a broader long-term trade deal with the US as they were not about to change their economic model. Of course, it cannot be a surprise this is the case, given the success they have had in the past twenty years and the fact that they believe they have the ability to withstand the inevitable economic slowdown that will continue absent a new trading arrangement. Last night, the Chinese PMI data released was much worse than expected with Manufacturing falling to 49.3 while Services fell to 52.8, both of which missed market estimates. However, the latest trade news implies that President Xi, while he needs to be able to feed his people, so is willing to import more agricultural products from the US, is also willing to allow the Chinese economy to slow substantially further. Interestingly, the renminbi has been a modest beneficiary of this news rallying 0.15% on shore, which takes its appreciation over the past two months to 2.1%. Eventually, I expect to see the renminbi weaken further, but it appears that for now, until phase one is complete, the PBOC is sticking to its plan to keep the currency stable.

Finally, last night the BOJ left policy unchanged, however, in their policy statement they explicitly mentioned that they may lower rates if the prospect of reaching their 2% inflation goal remained elusive. This is the first time they have talked about lowering rates from their current historically low levels (-0.1%) although the market response has been somewhat surprising. I think it speaks to the belief that the BOJ has run out of room with monetary policy and that the market is pricing in more deflation, hence a stronger currency. Of course, part of this move is related to the dollar’s weakness, but I expect that the yen has further to climb regardless of the dollar’s future direction.

In the EMG bloc there were two moves of note yesterday, both sharp declines. First Chile’s peso fell 1.5% after President Sebastian Pinera canceled the APEC summit that was to be held in mid-November due to the ongoing unrest in the country. Remember, Chile is one of the dozen nations where there are significant demonstrations ongoing. The other big loser was South Africa’s rand, which fell 2.9% yesterday after the government there outlined just how big a problem Eskom, the major utility, is going to be for the nation’s finances (hint: really big!). And that move is not yet finished as earlier this morning the rand had fallen another 1.1%, although it has since recouped a portion of the day’s losses.

On the data front, after yesterday’s solid GDP numbers, this morning we see Personal Income (exp 0.3%); Personal Spending (0.3%); Core PCE (0.1%, 1.7% Y/Y); Initial Claims (215K) and Chicago PMI (48.0). And of course, tomorrow is payroll day with all that brings to the table. For now, the dollar is under pressure and as there are no Fed speakers on the docket, it appears traders are either unwinding old long dollar positions, or getting set for the next wave of weakness. All told, it is hard to make a case for much dollar strength today, although strong data is likely to prevent any further weakness.

Good luck
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A Christmas Election

Prime Minister Johnson’s achieved
The goal that had had him aggrieved
A Christmas election
To change the complexion
Of Parliament, so they can leave

Meanwhile today all eyes have turned
To Washington where, when adjourned,
The Fed will declare
A rate cut that they’re
Not sure’s been entirely earned

Yesterday morning the UK Labour party finally caved and agreed to an election to be held in six short weeks. Boris has got exactly what he wants, an effective second referendum on Brexit, this time with a deal in hand. At this point, the polls have him leading handily, with 38% of the vote compared to just 23% for Labour and its leader Jeremy Corbyn. But we all know that the polls have been notoriously wrong lately, not least ahead of the original Brexit referendum which was tipped for Remain by a 52-48 margin and, of course, resulted in a Leave victory by that same margin. Then Theresa May, the newly appointed PM in the wake of that surprise thought she had the support to garner a strong mandate and called an election. And she lost her outright majority leading to two plus years of pusillanimous negotiations with the EU before finally reaching a deal that was so widely despised, she lost her job to Boris. And let us not forget where the polls pointed ahead of the US elections in 2016, when there was great certainty on both sides of the aisle that President Trump didn’t stand a chance.

So, looking ahead for the next six weeks, we can expect the pound to reflect the various polls as they are released. The stronger Boris looks, meaning the more likely that his deal is ratified, the better the pound will perform. For example, yesterday, upon the news that the election was finally agreed, the pound immediately rallied 0.5%, and subsequently topped out at a 0.75% jump from intraday lows. While it ceded the last of those gains before the close yesterday, this morning it has recouped them and is currently higher by 0.25%. A Johnson victory should lead to further strength in the pound, with most estimates calling for a short-term move to the 1.32-1.35 area. However, in the event Boris is seen as failing at the polls, the initial move should be much lower, as concern over a no-deal Brexit returns, but that outcome could well be seen as a harbinger of a cancelation of Article 50, the EU doctrine that started this entire process. And that would lead to a much stronger pound, probably well north of 1.40 in short order.

With that situation in stasis for now, the market has turned its attention to the FOMC meeting that concludes this afternoon. Expectations remain strong for a 25bp rate cut, but the real excitement will be at the press conference, where Chairman Powell will attempt to explain the Fed’s future activities. At this point, many pundits are calling for a ‘hawkish’ cut, meaning that although rates will decline, there will be no indication that the Fed is prepared to cut further. The risk for Powell there is that the equity market, whose rally has largely been built on the prospect of lower and lower interest rates, may not want to hear that news. A tantrum-like reaction, something at which equity traders are quite adept, is very likely to force Powell and the Fed to reconsider their message.

Remember, too, that this Fed has had a great deal of difficulty in getting their message across clearly. Despite (or perhaps because of) Powell’s plain-spoken approach, he has made a number of gaffes that resulted in sharp market movement for no reason. And today’s task is particularly difficult. Simply consider the recent flap over the Fed restarting QE. Now I know that they continue to claim this is nothing more than a technical adjustment to the balance sheet and not QE, but it certainly looks and smells just like QE. And frankly, the market seems to perceive it that way as well. All I’m trying to point out is that you need to be prepared for some volatility this afternoon in the event Powell puts his foot back into his mouth.

As to the markets this morning, aside from the pound’s modest rally, most currencies are trading in a narrow range ahead of the FOMC meeting this afternoon, generally +/- 0.15%. We did see a bunch of data early this morning reinforcing the ongoing malaise in Europe. While French GDP data was largely as expected, Eurozone Confidence indicators all pointed lower than forecast. However, the euro has thus far ignored these signals and is actually a modest 0.1% higher as I type. And in truth, as that was the only meaningful data, other market movement has been even less impressive.

This morning we also hear from the Bank of Canada, who is expected to leave rates unchanged at 1.75%, which after the Fed cuts, will leave them with the highest policy rates in the G10. Now the economy up north has been performing quite well despite some weakness in the oil patch. Employment has risen sharply so far this year, with more than 350K jobs created. Inflation is running right around their 2.0% target and GDP, while slowing a bit from earlier in the year, is likely to hold just below potential and come in at 2.0% for the year. Over the course of the past two weeks, the Loonie has been a solid performer, rising 2.0%. If the BOC stays true, it is entirely reasonable to expect a bit more strength there.

This morning begins this week’s real data outturn with ADP Employment (exp 110K) kicking things off at 8:15, then the first look at Q3 GDP (1.6%) comes fifteen minutes later. Obviously, those are both important in their own right, but with the Fed on tap at 2:00, it would take a huge surprise in either one to move the market much. As such, I doubt we will see much of consequence until 2:00, and more likely not until Powell speaks at 2:30. Until then, things should remain sleepy. After? Who knows!

Good luck
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New Brexit Day

In Britain and in the EU
They finally made a breakthrough
Three months from Thursday
Is New Brexit Day
Will England, at last, bid adieu?

So French President Macron finally agreed what we all knew he would agree, that the UK will get another three-month Brexit extension. The question now is whether or not the UK will be able to figure out how to end this saga. It is abundantly clear that Labour leader, Jeremy Corbyn, is terrified of a general election because he knows he and his party will be decimated, and he is likely to lose his role. However, it is also abundantly clear that Parliament, as currently constructed, is completely unable to finalize this process. Later today we will know if Boris will be able to convince two-thirds of the current Parliament to vote with him and prepare the ground for an election. Already, the Scottish National Party and Lib-Dems are on board, but that will not get the job done, Labour has to agree.

Throughout all these machinations, FX traders find themselves constantly searching for a clue as to the outcome but the big picture remains the same. A hard Brexit is still seen as resulting in a very sharp decline in the pound. Meanwhile, a smooth Brexit transition, where the negotiated deal is put in place, is likely to add a few cents more to the pound’s current value, at least in the short run. Finally, in the event that an election led to a Parliament that not only voted against the deal, but decided to withdraw Article 50, something not getting very much attention at all, then the pound would very likely head back north of 1.40. Of the three, my money is still on a negotiated withdrawal, but stranger things have happened. At any rate, we ought to no more before the end of the day when Parliament will have ostensibly voted on whether or not to hold the new election.

Moving on to the other stories in the market, there really aren’t very many at all! In fact, markets around the world seem to be biding their time for the next big catalyst. If pressed, I would point to Wednesday’s FOMC meeting as the next big thing.

On Wednesday the FOMC
Will issue their latest decree
While Fed Funds will fall
They don’t seem in thrall
To more cuts, lest growth soon falls free

As of this writing, the probability of the Fed cutting rates 25bps on Wednesday, at least according to futures market pricing, is 91%. This is a pretty good indication that the Fed is going to cut for a third time in a row, despite the fact that they keep exclaiming what a “good place” the economy is in. One of the interesting things about this is that both the Brexit situation and the trade situation seem to have improved substantially since the September meeting, which seemingly would have reduced the need for added stimulus. However, since the stock market continues to rely on the idea of ongoing stimulus for its performance, and since the performance of the stock market continues to be the real driver of Fed policy, I see no reason for them to hold back. However, inquiring minds want to know if Wednesday’s cut will be the last, or if they will continue down this slippery slope.

According to Fed funds Futures markets, expectations for another cut beyond this one have diminished significantly, such that there is only a 50% probability of the next cut coming by March 2020. And, after all, given the reduction in global tensions and uncertainty, as well as the recent hints from CPI that inflation may finally be starting to pick up, it seems that none of their conditions for cutting rates would be met. However, if Chairman Jay sounds hawkish in his press conference, and the result is that equity markets retreat, do not be surprised if those probabilities change in favor of another cut in December. So, we have much to look forward to this Wednesday.

Ahead of that, and after the UK parliament vote later today, though, I think we will rely on Wednesday morning’s data for the next opportunity for excitement. Here’s the full slate:

Tuesday Case Shiller Home Prices 2.10%
  Consumer Confidence 128.0
Wednesday ADP Employment 110K
  GDP 3Q 1.6%
  FOMC Decision 1.75% (-0.25%)
Thursday Initial Claims 215K
  Personal Income 0.3%
  Personal Spending 0.3%
  Core PCE 0.1% (1.7% Y/Y)
  Chicago PMI 48.0
Friday Nonfarm Payrolls 85K
  Private Payrolls 80K
  Manufacturing Payrolls -55K (GM Strike)
  Unemployment Rate 3.6%
  Average Hourly Earnings 0.3% (3.0% Y/Y)
  Average Weekly Hours 34.4
  Participation Rate 63.1%
  ISM Manufacturing 49.0
  ISM Prices paid 50.0

Source: Bloomberg

So, the back half of the week can certainly produce some excitement. Remember, the employment data will have been significantly impacted by the General Motors strike, which has since been settled. Expect to see a lot of analysis as to what the numbers would have been like absent the strike. But still, the Fed remains the dominant theme of the week. And then, since the press conference never seems to be enough, we will hear from four Fed speakers on Friday to try to explain what they really meant.

For now, though, quiet is the most likely outcome. Investors are not likely to get aggressive ahead of the Fed, and though short positions remain elevated in both euros and pounds, they have not been increasing of late. Overall, the dollar is little changed on the day, and I see little reason for it to move in either direction. Quiet markets are beneficial for hedgers, so don’t be afraid to take advantage.

Good luck
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