Tag Archives: #UK

Twiddling Their Thumbs

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Investors are twiddling their thumbs
Awaiting the next news that comes
The Old Lady’s meeting’s
Impact will be fleeting
And Jay’s finished flapping his gums

Which leads to the question at hand
Is risk on or has it been banned?
The one thing we know
Is growth’s awfully slow
Beware, markets could well crash land

Markets are taking a respite this morning with modest movement across all three major asset classes. While the Bank of England is on tap with their latest policy announcement, the market feels certain they will leave rates on hold, at 0.10%, and that they will increase their QE purchases by £100 billion, taking the total to £745 billion, in an effort to keep supplying liquidity to the economy. It is somewhat interesting that the story from earlier in the week regarding positive movement on Brexit had such a modest and short-term impact on the pound, which has actually begun to decline a bit more aggressively as I type. After peaking a week ago, the pound has ceded 2.5% from that top (-0.6% today). There is nothing in the recent UK data that would lead one to believe that the economy there is going to be improving faster than either the EU or the US, and with monetary policy at a similar level of ease on a relative basis, any rationale to buy pounds is fragile, at best. I continue to be concerned that the pound leads the way lower vs. the dollar, at least until the current sentiment changes. And while the BOE could possibly change that sentiment, I would estimate that given yesterday’s inflation reading (0.5%) and their inflation target (2.0%), they see a weaker pound as a distinct benefit. Meanwhile, remember the current central bank mantra, ease more than expected. If there is any surprise today, look for £150 billion of QE, which would merely add further urgency to selling pounds.

But aside from the BOE meeting, there is very little of interest to the markets. The ECB announced that their TLTRO III.4 program had a take-up of €1.31 trillion, within the expected range, as 742 banks in the Eurozone got paid 1.0% to borrow money from the ECB in order to on lend it to their clients. But while an interesting anecdote, it is not of sufficient interest to the market to respond. In fact, the euro sits virtually unchanged on the day this morning, waiting for its next important piece of news.

In the G10 space, the only other mover of note is NOK, which has rallied 0.5% on the back of two stories. First, oil prices have moved a bit higher, up slightly less than 1% this morning, which is clearly helping the krone. But perhaps more importantly, the Norgesbank met, left rates on hold at 0.00%, but explained that there was no reason for rates to decline further, once again taking NIRP off the table.

However, away from those two poles, there is very little of interest in the G10 currency space. As to the EMG space, it too is pretty dull today, with RUB the leading gainer, +0.55%, on the oil move and ZAR the leading decliner, -0.4%, amid rising concern over the spread of Covid there as the infection curve remains on a parabolic trajectory. Similar to the G10 space, there is not much of broad interest overall.

Equity markets have also “enjoyed” a mixed session, with Asian markets showing gainers, Shanghai +0.1%, and losers, Nikkei -0.25%, but nothing of significant size. In Europe, the news is broadly negative, but other than Spain’s IBEX (-1.0%) the losses are quite modest. And finally, US futures are mixed but all within 0.1% of yesterday’s closing prices.

Lastly, bond markets are generally firmer, with yields falling slightly as 10-year Treasuries have decline 3 basis points on the session, broadly in line with what we are seeing in European government bond markets. Arguably, we should see the PIGS bonds perform well as that TLTRO money finds its way into the highest yielding assets available.

Perhaps we can take this pause in the markets as a time to reflect on all we have learned lately and try to determine potential outcomes going forward. From a fundamental perspective, the evidence points to April as the nadir of economic activity, which given the widespread shutdowns across the US and Europe, should be no surprise. Q2 GDP data is going to be horrific everywhere, with the Atlanta Fed’s GDPNow number currently targeting -45.5%. But given the fact that economies on both sides of the Atlantic are reopening, Q3 will certainly show a significant rebound, perhaps even the same percentage gain. Alas, a 45% decline followed by a 45% rebound still leaves the economy more than 20% lower than it was prior to the decline. And that, my friends, is a humongous growth gap! So, while we will almost certainly see a sharp rebound, even the Fed doesn’t anticipate a recovery of economic activity to 2019 levels until 2022. Net, the economic picture remains one of concern.

On the fiscal policy front, the US story remains one where future stimulus is uncertain and likely will not be nearly as large as the $2.2 trillion CARES act, although the Senate is currently thinking of $1 trillion. In Europe, the mooted €750 billion EU program that would be funded by joint taxation and EU bond issuance, is still not completed and is still drawing much concern from the frugal four (Austria, Sweden, the Netherlands and Denmark). And besides, that amount is a shadow of what is likely necessary. Yes, we have seen Germany enact their own stimulus, as has France, Spain and Italy, but net, it still pales in comparison to what the US has done. Other major nations continue to add to the pie, with both China and Japan adding fiscal stimulus, but in the end, what needs to occur is for businesses around the world to get back to some semblance of previous activity levels.

And yet, investors have snapped up risk assets aggressively over the past several months. The value in an equity is not in the ability to sell it higher than you bought it, but in the future stream of earnings and cashflows the company produces. The multiple that investors are willing to pay for that future stream is a key determinant of long-term equity market returns. It is this reason that there are many who are concerned about the strength of the stock market rebound despite the destruction of economic activity. This conundrum remains, in my view, the biggest risk in markets right now and while timing is always uncertain, provides the potential for a significant repricing of risk. In that event, I would expect that traditional haven assets would significantly outperform, including the dollar, so hedgers need to stay nimble.

A quick look at this morning’s data shows Initial Claims (exp 1.29M), Continuing Claims (19.85M), Philly Fed (-21.4) and Leading Indicators (+2.4%). The claims data remains the key short-term variable that markets are watching, although it appears that economists have gotten their models attuned to the current reality as the last several prints have been extremely close to expectations.

Overall, until something surprising arises, it feels like the bulls remain in control, so risk is likely to perform well. Beware the disconnect, though, between the dollar and the stock market, as that may well be a harbinger of that repricing on the horizon.

Good luck and stay safe
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Making More Hay

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The Chairman explained yesterday
That more help would be on the way
If things turned out worse
Thus he’s not averse
To Congress soon making more hay

Chairman Powell testified before the Senate Banking Committee yesterday and continued to proffer the message that while the worst may be behind us, there is still a long way to go before the recovery is complete. He continued to highlight the job losses, especially in minority communities, and how the Fed will not rest until they have been able to foster sufficient economic growth to enable unemployment to fall back to where it was prior to the onset of the Covid crisis. He maintains, as does the entire FOMC, that there are still plenty of additional things the Fed can do to support the economy, if necessary, but that he hopes they don’t have to take further measures. He also agreed that further fiscal stimulus might still be appropriate, although he wouldn’t actually use those words in his effort to maintain the fiction that the Fed is independent of the rest of the government. (They’re not in case you were wondering.) In other words, same old, same old.

The market’s response to the Chairman’s testimony was actually somewhat mixed. Equity prices continue to overperform, although they did retreat from their intraday highs by the close, but the dollar, despite what was clearly an increasing risk appetite, reversed early weakness and strengthened further. Initially, that dollar strength was attributed to a blow-out Retail Sales number, +17.7%, but that piece of the rally faded in minutes. However, as the day progressed, dollar buyers were in evidence as the greenback ignored traditional sell signals and continued to forge a bottom.

Recently, there seems to have been an increase in discussion about the dollar’s imminent decline and the end of its days as the global reserve currency. Economists point to the massive current account deficit, the debasement by the Fed as it monetizes debt and the concern that the current administration will not embrace previous global norms. My rebuttal of this is simple: what would replace the dollar as the global monetary asset that would be universally accepted and trusted to maintain some semblance of its value? The answer is, there is nothing at this time, that could possible do the job. The euro? Hah! Not only is it still dealing with existential issues, but the fact that there is no European fiscal policy will necessarily result in missing support when needed. The renminbi? Hah! The idea that the free world would rely on a currency controlled by the largest communist regime is laughable. The Swiss franc? Too small. Bitcoin? Hahahahah! ‘Nuff said. Gold? Those who are calling the end of the dollar’s importance in the world are not the same people calling for a return to the gold standard. In fact, the views of those two groups are diametrically opposed. For now, the dollar remains the only viable candidate for the role, and that is likely to remain the case for a very long time. As such, while it will definitely rise and fall over short- and medium-term windows, do not believe the idea of a coming dollar collapse.

Meanwhile, ‘cross the pond in the land
Where Boris is still in command
Inflation is sinking
While Bailey is thinking
He ought, the B/S, to expand

Turning to more immediate market concerns, UK data this morning showed CPI falling to 0.5% Y/Y, well below the BOE’s target of 2.0%. With the BOE on tap for tomorrow, the market feels quite confident that Governor Bailey will be increasing QE purchases by £100 billion, taking the total to £745 billion, or slightly more than one-third of the UK economy. The thing is, it is not clear that QE lifts prices of anything other than stocks. I understand that central banks are limited by monetary tools, but if we have learned anything since the GFC in 2008-09, it is that monetary tools are not very effective when addressing the real economy. There is no evidence that this time will be different in the UK than it has been everywhere else in the world forever. The pound, however, has suffered in the wake of the current UK combination of events. So rapidly declining inflation along with expectations of further monetary policy ease have been more than enough to offset yesterday’s positive Brexit comments explaining that both sides believe a deal is possible. Perhaps the question we ought to be asking is, even if hard Brexit is avoided, should the pound really rally that much? My view remains that while a hard Brexit would definitely be a huge negative, the pound has enough troubles on its own to avoid rising significantly from current levels. I still cannot make a case for 1.30, not in the current situation.

As to the rest of the FX market, it is having a mixed session today, with both gainers and losers, although no very large movers in either direction. For instance, the best G10 performer today is NOK, which has rallied just 0.3% despite oil’s lackluster performance today. Meanwhile, the worst performer is the euro, which has fallen 0.2%. The point is, movement like this does not need a specific explanation, and is simply a product of position adjustments over time.

Emerging market currency activity has been no different, really, with MXN the best performer (you don’t hear that much) but having rallied just 0.35%. the most positive story I’ve seen was that the Mexican president, AMLO, has promised to try to work more closely with the business community there to help address the still raging virus outbreak. On the downside, KRW, yesterday’s best performer, is today’s worst, falling 0.55%. This seems to be a response to the increasingly aggressive rhetoric from the North, who is now set to deploy troops to the border, scrapping previous pledges to maintain a demilitarized zone between the nations. However, it would be wrong not to mention yesterday’s BRL price action, where the real fell 1.7%, taking its decline over the past week to more than 5.1%. The situation on the ground there seems to be deteriorating rapidly as the coronavirus is spreading rapidly, more than 37K new cases were reported yesterday, and investors are taking note.

On the data front this morning, we see Housing Starts (exp 1100K) and Building Permits (1245K), neither of which seems likely to be a market mover. The Chairman testifies before the House today, but it is only the Q&A that will be different, as his speech is canned. We also hear from the Uber-hawk, Loretta Mester, but these days, even she is on board for all the easing that is ongoing, so don’t look for anything new there.

Ultimately, I continue to look at the price action and feel the dollar is finding its footing, regardless of the risk attitude. Don’t be too greedy if you are a receivables hedger, there is every chance for the dollar to strengthen further from here.

Good luck and stay safe
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Yesterday’s News

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The first bit of data we’ve seen
Has shown what economists mean
When most business stops
And GDP drops
Reacting to Covid – 19

This data describes people’s fear
Another wave just might appear
But right now those views
Are yesterday’s news
And ‘buy the dip’ traders are here

The UK is an interesting study regarding GDP growth because they actually publish monthly numbers, rather than only quarterly data like the rest of the developed world. So, this morning, the UK reported that GDP activity in April declined 20.4% from March, which had declined 5.8% from February when the first impact of Covid-19 was felt. This has resulted in the UK economy shrinking back to levels last seen in 2002. Eighteen years of growth removed in two months! Of course, when things recover, and they will recover as the lockdowns are eased around the world, we will also get to see the fastest growth numbers in history. However, we must remember that a 20% decline will require a 25% rebound to get back to where we started. Keep that in mind when we start to see large positive numbers in the summer (hopefully) or the autumn if people decide that the risks of Covid outweigh the benefits of returning to previous activities.

Needless to say, this has been an unprecedented decline, on a monthly basis, in the economy for both its depth and speed. But the more remarkable thing, is that despite this extraordinary economic disruption, a look at financial markets shows a somewhat different story. For example, on February 28, the FTSE 100 closed at 6580.61 and the pound finished the session at 1.2823. On April 30, after the worst two-month economic decline in the UK’s history, its main stock market had declined 10.3% while the pound had fallen just 1.8%. Granted, both did trade at substantially lower levels in the interim, bottoming in the third week of March before rebounding. But it seems to me that those are pretty good performances given the size of the economic dislocation. And since then, both the FTSE 100 and the pound have rallied a bit further.

The question is, how can this have occurred? Part of the answer is the fact that on a contemporaneous basis, investors could not imagine the depths of the economic decline that was taking place. While there were daily stories of lockdowns and death counts, it is still hard for anyone to have truly understood the unprecedented magnitude of what occurred. And, of course, part of the answer was this did not happen in a vacuum as policymakers responded admirably quickly with the BOE cutting rates by a total of 0.65% in the period while expanding their balance sheet by £150 billion (and still growing). And the UK government quickly put together stimulus packages worth 5% of then measured GDP. Obviously, those measures were crucial in preventing a complete financial market collapse.

Another thing to remember is that the FTSE 100 was trading at a P/E ratio of approximately 15 ahead of the crisis, which in the long-term scheme of things was actually below its average. So, stock prices in the UK were nowhere near as frothy as in the US and arguably had less reason to fall.

As to the pound, well, currencies are a relative game, and the same things that were happening in the UK were happening elsewhere as well to various degrees. March saw the dollar’s haven status at its peak, at which point the pound traded below 1.15. But as policymakers worldwide responded quite quickly, and almost in unison, the worst fears passed and the ‘need’ to own dollars ebbed. Hence, we have seen a strong rebound since, and in truth a very modest net decline.

The questions going forward will be all about how the recovery actually unfolds, both in timing and magnitude. The one thing that seems clear is that the uniformity of decline and policy response that we saw will not be repeated on the rebound. Different countries will reduce safety measures at different paces, and populations will respond differently to those measures. In other words, as confusing as data may have been before Covid, it will be more so going forward.

Now, quickly, to markets. Yesterday’s equity market price action in the US was certainly dramatic, with the Dow falling nearly 7% and even the NASDAQ falling 5.25%. The best explanation I can offer is that reflection on Chairman Powell’s press conference by investors left them feeling less confident than before. As I wrote in the wake of the ECB meeting last week, the only way for a central banker to do their job (in the market’s eyes) these days is to exceed expectations. While analysts did not expect any policy changes, there was a great deal of talk on trading desks floors chatrooms about the next step widely seen as YCC. The fact that Jay did not deliver was seen as quite disappointing. In fact, it would not be surprising to me that if stock markets continued to decline sharply, the Fed would respond.

But that is not happening as buying the dip is back in fashion with European markets higher by roughly 1.5% and US futures also pointing higher. Meanwhile, with risk back in favor, Treasury yields have backed up 3bps and the dollar is under pressure.

On the FX front, the G10 is a classic depiction of risk-on with the yen (-0.5%) and Swiss franc (-0.3%) both declining while the rest of the bloc is higher led by CAD and AUD, both up 0.5%. In truth, this has the feeling of a bounce from yesterday’s dollar strength, rather than the beginning of a new trend, but that will depend on the broader risk sentiment. If equity market ebullience this morning fades as the session progresses, look for the dollar to take back its overnight losses.

Meanwhile, EMG markets are having a more mixed session with APAC currencies all having fallen last night in the wake of the US equity rout. APAC equities were modestly lower to unchanged but had started the session under far more pressure. At the same time, the CE4, with the benefit of the European equity rebound and higher US futures are mostly firmer led by PLN (+0.6%). But the biggest winner today in this space is MXN, which has rebounded 0.7% from yesterday’s levels, although that represented a nearly 4% decline! In other words, the defining characteristic of the peso these days is not its rate but its volatility. For example, 10-day historic volatility in the peso is currently 28.37%, up from 13.4% last Friday and 21.96% in the middle of May when we were looking at daily 3% moves. Do not be surprised if we see another bout of significant peso volatility, especially given the ongoing concerns over AMLO’s handling of Covid.

On the data front, only Michigan Sentiment (exp 75.0) is on the docket today, which may have an impact if it is surprisingly better than expected, but I don’t anticipate much movement. Rather, FX remains beholden to the overall risk sentiment as determined by the US equity markets. If the rebound continues, the dollar will remain under pressure. If the rebound fails, look for the dollar to resume yesterday’s trend.

Good luck, good weekend and stay safe
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They’re Trying

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The Kiwis have doubled QE
The Brits saw collapsed GDP
The Fed keeps on buying
More bonds as they’re trying
To preempt a debt jubilee

The RBNZ was the leading economic story overnight as at their meeting, though they left interest rates unchanged at 0.25%, they virtually doubled the amount of QE purchases they will be executing, taking it up to NZ$60 billion. Not only that, they promised to consider even lower interest rates if deemed necessary. Of course, with rates already near zero, that means we could be looking at the next nation to head through the interest rate looking glass. It should be no surprise that NZD fell on the release, and it is currently lower by 0.9%, the worst performing currency of the day.

Meanwhile, the UK released a raft of data early this morning, all of which was unequivocally awful. Before I highlight the numbers, remember that the UK was already suffering from its Brexit hangover, so looking at slow 2020 growth in any case. GDP data showed that the economy shrank 5.8% in March and 2.0% in Q1 overall. The frightening thing is that the UK didn’t really implement any lockdown measures until the last week of March. This bodes particularly ill for the April and Q2 data. IP fell 4.2% and Consumption fell 1.7%. Thus, what we know is that the UK economy is quite weak.

There is, however, a different way to view the data. Virtually every release was “better” than the median forecast. One of the truly consistent features of analysts’ forecasts about any economy is that they are far more volatile than the actual outcome. The pattern is generally one where analysts understate a large move because their models are not well equipped for exogenous events. Then, once an event occurs, those models extrapolate out at the initial rate of change, which typically overstates the negative news. For example, if you recall, the early prognostications for the US employment data in March called for a loss of 100K jobs, which ultimately printed at -713K. By last week’s release of the April data, the analyst community had gone completely the other way, anticipating more than 22M job losses, with the -20.5M number seeming better by comparison. So, we are now firmly in the overshooting phase of economic forecasts. The thing about the current situation though, is that there is so much uncertainty over the next steps by governments, that current forecasts still have enormous error bars. In other words, they are unlikely to be even remotely accurate on a consistent basis, regardless of who is forecasting. Keep that in mind when looking at the data.

In fact, the one truism is that on an absolute basis, the economic situation is currently horrendous. A payroll report of -20.5M instead of -22.0M is not a triumph of policymaking, it is a humanitarian disaster. And it is this consideration, that regardless of data outcomes vs. forecasts, the data is awful, that informs the view that equity markets are unrealistically priced. Thus, the battle continues between those who look at the economy and see significant concerns and those who look at the central bank support and see blue skies ahead. This author is in the former camp but would certainly love to be wrong. Regardless, please remember that data that beats a terrible forecast by being a little less terrible is not the solution to the current crisis. I fear it will be many months before we see actual positive data.

Turning to this morning’s session, the modest risk aversion seen in equity (DAX -1.5%, CAC -1.7%) and bond (Treasuries -1bp, Bunds -2bps) markets is less clear in the FX world. In fact, other than the NZD, the rest of the G10 is firmer this morning led by NOK (+0.7%) on the strength of the continuing rebound in the oil market. Saudi Arabia’s announcement that they will unilaterally cut output by a further 1 million bpd starting in June has helped support crude. In addition, another thesis is making the rounds, that mass transit will have lost its appeal for many people in the wake of Covid-19, thus those folks will be returning to their private vehicles and using more gasoline, not less. This should also bode well for the Big 3 auto manufacturers and their supply chains if it does describe the post-covid reality. It should be no surprise that in the G10, the second-best performer is CAD (+0.4%) nor that in the EMG bloc, it is MXN (+1.0%) and RUB (+0.5%) atop the leaderboard.

Other than the oil linked currencies, though, there has been very little movement overall, with more gainers than losers, but most movement less than 0.25%. the one exception to this is HUF, which has fallen 0.5%, after news that President Orban is changing the tax rules regarding city governments (which coincidentally are controlled by his opponents) and pushing tax revenues to the county level (which happen to be controlled by his own party). This nakedly political maneuvering is not seen as a positive for the forint. But other than that, there is little else to tell.

On the data front, this morning brings PPI data (exp -0.4%, 0.8% ex food & energy) but given we already saw CPI yesterday, and more importantly, inflation issues are not even on the Fed’s agenda right now, this is likely irrelevant. Of more importance will be the 9:00 comments from Chairman Powell as market participants will want to hear about his views on the economy and of likely future activity. Will there be more focused forward guidance? Are negative rates possible? What other assets might they consider buying? While all of these are critical questions, it does seem unlikely he will go there today. Instead, I would look for platitudes about the Fed doing everything they can, and that they have plenty of capacity, and willpower, to do more.

And that’s really it for what is starting as a quiet day. The dollar is under modest pressure but remains much closer to recent highs than recent lows. As long as investors continue to accept that the Fed and its central bank brethren are on top of the situation, I imagine that we can see further gains in equity markets and further weakness in the dollar. I just don’t think it can go on that much longer.

Good luck and stay safe
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Make Hay

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The Fed, today’s, finally set
To start to buy corporate debt
Meanwhile the UK
Did start to make hay
With its largest Gilt issue yet

While markets are fairly docile this morning, there are four interesting stories to note, all of which are likely to have bigger impacts down the road.

The first of these emanates from the Mariner Eccles Building in Washington, where the FOMC will begin to implement its Secondary Market Corporate Credit Facility (SMCCF), purchasing its first investment grade bond ETF’s. Ironically, in their effort to stabilize corporate credit markets that are suffering a hangover of excess issuance prior to the Covid-19 crisis, the Fed is going to ramp up margin debt for the purchases. A little ‘hair of the dog’ it seems is the best idea they have. Consider, the process of these purchases is that the Treasury has deposited $37.5 billion into an SPV account which will serve as collateral for that SPV to purchase up to 10x that amount in securities. Talk about speculative! If the SPV purchases its full allotment, then the Fed will effectively be increasing the total amount of margin debt outstanding by nearly 80%. Granted, there is no concern about the Fed being able to pay for these securities in actuality, it’s just the legal questions that may arise if they fall in price by more than 10% and the Fed has actual losses on its balance sheet. Naturally, the idea is that with the Fed buying, there is almost no possibility that prices could fall. However, do not believe that for a moment, just as we have seen in the Treasury market, despite the Fed buying $ trillions worth, bond prices still decline all the time. And don’t forget what we saw in March, when yields rocketed higher for a period of time. Perhaps the most surprising aspect is that US equity futures have been trading either side of flat despite this new money entering the market.

The second interesting story comes from across the pond, where the UK issued gilts via a syndicate for the first time, offering a new 10-year bond and garnering £65 billion pounds of demand, a record amount of attraction. It seems that one of the things that got buyers excited was a comment by BOE Deputy Governor Broadbent hinting that negative rates are not out of the question as the Old Lady seeks to insure sufficient policy support for the economy.

While on the subject of negative rates, it is worth noting that two Fed regional presidents, Bostic and Evans, were both circumspect as to the need for the Fed to ever go down that road. That is certainly good news, but one cannot forget the language change made in September of last year when the Fed stopped referring to the “zero lower bound” and began calling it the “effective lower bound”. Observers far more prescient than this one have noted that the change clearly opens the door for negative rates in the future. There is certainly no indication that is on the cards right now, but it is not an impossibility. Keep that in mind.

From Austria, Herr PM Kurz
Admitted that fiscal transfers
Are what are required
Lest Rome is inspired
To exit, which no one prefers

Another interesting headline this morning comes from Vienna, where Austrian PM Sebastian Kurz explained that the only way Italy can survive is via debt mutualization by the EU, as there is no way they will ever be able to repay their debt. While it is refreshing to hear some truth, it is also disconcerting that in the very next comment, PM Kurz explained there was no way that Austria was comfortable with that course of action. While Austria stood ready to support Italy, they would not take on their obligations. Of course, this is the fatal flaw in the EU, the fact that the Teutonic trio of Germany, Austria and the Netherlands are the only nations that can truly help fund the crisis but are completely unwilling to do so. I once again point to the German Constitutional Court ruling last week as a sign that the euro is likely to remain under pressure for a time to come. While this morning it is now higher by 0.2%, it remains near the bottom of its recent range with ample opportunity to decline further. Beware the ides of August, by which time the ECB will have responded to the court.

And finally, it must be noted that it is raining in Norway. By this I mean that the Government Pension Fund of Norway, the world’s largest wealth fund, is going to be selling as much as $41 billion in assets in order to fund the Norwegian government and its response to the crisis. This is exactly what a rainy-day fund is meant for, so no qualms there. But it does mean that we are going to see some real selling pressure on financial assets as they liquidate that amount of holdings, many of which are in US stocks. NOK, however, has been the beneficiary, rallying 0.8% this morning on the news. Given the krone has been the worst performing G10 currency this year, it has plenty of room to rally further without having any negative economic impacts.

Those are the most interesting headlines of the day, and the ones most likely to have a market impact. However, today, for the first time in a while, there is not much market impact in any markets. Equity prices in Asia were modestly softer, while those in Europe are mixed but edging higher. Bond prices are within a tick or two of yesterday’s closing levels, and the dollar is having a mixed session, although I would estimate that on net it is slightly weaker.

On the data front, it has been extremely quiet overnight with a few Sentiment indicators in France and Japan, as well as the NFIB here in the US, all printing terrible numbers, but none quite as terrible as the median forecasts. My observation is that analysts are now expanding their view of just how bad things are and beginning to overstate the case. As for this morning, we have CPI on the docket, with expectations of a 0.4% headline print and 1.7% core print. While inflation may well be in our future given the combination of monetary and fiscal policy response, it is not in the near future.

Barring some other news story, markets seem pretty happy to consolidate for a change, and I expect that is what we will see today. However, nothing has changed my view that a substantial repricing of risk is still in our future, and with it, a stronger dollar. While we don’t know what the catalyst will be, I have my eye on the ECB response to the German Constitutional Court ruling.

Good luck and stay safe
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Dire Straits

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In Europe, that grouping of states
Now find themselves in dire straits
The PMI data
Described a schemata
Of weakness and endless low rates

In the past, economists and analysts would build big econometric models with multiple variables and then, as new data was released, those models would spit out new estimates of economic activity. All of these models were based on calculating the historic relationships between specific variables and broader growth outcomes. Generally speaking, they were pretty lousy. Some would seem to work for a time, but the evolution of the economy was far faster than the changes made in the models, so they would fall out of synch. And that was before Covid-19 pushed the pace of economic change to an entirely new level. So now, higher frequency data does a far better job of giving indications as to the economic situation around the world. This is why the Initial Claims data (due this morning and currently expected at 4.5M) has gained in the eyes of both investors and economists compared to the previous champ, Nonfarm Payrolls. The latter is simply old news by the time it is released.

There is, however, another type of data that is seen as quite timely, the survey data. Specifically, PMI data is seen as an excellent harbinger of future activity, with a much stronger track record of successfully describing inflection points in the economy. And that’s what makes this morning’s report so disheartening. Remember, the PMI question simply asks each respondent whether activity is better, the same or worse than the previous month. They then subtract the percentage of worse from the percentage of better and, voila, PMI. With that in mind, this morning’s PMI results were spectacularly awful.

Country Manufacturing Services Composite
France 31.5 10.4 11.2
Germany 34.4 15.9 17.1
UK 32.9 12.3 12.9
Eurozone 33.6 11.7 13.5

Source: Bloomberg

In each case, the data set new historic lows, and given the service-oriented nature of developed economies, it cannot be that surprising that the Services number fell to levels far lower than manufacturing. After all, social distancing is essentially about stopping the provision of individual services. But still, if you do the math, in France 94.8% of Service businesses said that things were worse in April than in March. That’s a staggering number, and across the entire continent, even worse than the dire predictions that had been made ahead of the release.

With this in mind, two things make more sense. First, the euro is under pressure this morning, falling 0.6% as I type and heading back toward the lows seen last month. Despite all the discussion of how the Fed’s much more significant policy ease will ultimately undermine the dollar, the short-term reality continues to be, the euro has much bigger fundamental problems and so is far less attractive. The other thing is the ECB’s announcement last evening that they were following the Fed’s example and would now be accepting junk bonds as collateral, as long as those bonds were investment grade as of April 7. This is an attempt to prevent Italian debt, currently rated BBB with a negative outlook, from being removed from the acceptable collateral list when if Standard & Poor’s downgrades them to junk tomorrow. Italian yields currently trade at a 242bp premium to German yields in the 10-year bucket, and if they rise much further, it will simply call into question the best efforts of PM Conte to try to support the Italian economy. After all, unlike the US, Italy cannot print unlimited euros to fund themselves.

Keeping all that happy news in mind, market performance this morning is actually a lot better than you might expect. Equities in Asian markets were mixed with the Nikkei up nicely, +1.5%, but Shanghai slipping a bit, -0.2%. Another problem in Asia is Singapore, where early accolades about preventing the spread of Covid-19 have fallen by the wayside as the infection rate there spikes and previous efforts to reopen the economy are halted or reversed. Interestingly, the Asian PMI data was relatively much better than Europe, with Japanese Services data at 22.8. Turning to Europe, the picture remains mixed with the DAX (-0.3%) and FTSE 100 (-0.3%) slipping while the CAC (+0.1%) has managed to keep its head above water. The best performer on the Continent is Italy (+1.0%) as the ECB decision is seen as a win for all Italian markets. US futures markets are modestly negative at this time, but just 0.2% or so, thus it is hard to get a sense of the opening.

Bond markets are also having a mixed day, with the weakest links in Europe, the PIGS, all rallying smartly with yields lower by between 5bps (Italy) and 19bps (Greece). Treasury yields, however, have actually edged higher by a basis point, though still yield just 0.63%. And finally, the dollar, too, is having a mixed session. In the G10 bloc, the euro and Swiss franc are at the bottom of the list today, with Switzerland inextricably tied to the Eurozone and its foibles. On the plus side, NOK has jumped 1.0% as oil prices, after their early week collapse, are actually rebounding nicely this morning with WTI higher by 12.4% ($1.70/bbl), although still at just $15.50/bbl. Aussie (+0.6%) and Kiwi (+0.75%) are also in the green, as both have seen sharp recent declines moderate.

EMG currencies also present a mixed picture, with the ruble on top of the charts, +1.4%, on the strength of the oil market rebound. India’s rupee has also performed well overnight, rising 0.8%, as the market anticipates further monetary support from the Reserve bank there. While there are other gainers, none of the movement is significant. On the other side of the ledger, the CE4 are all under pressure, tracking the euro’s decline with the lot of them down between 0.3% and 0.5%. I must mention BRL as well, which while it hasn’t opened yet today, fell 2.6% yesterday as the market responded to BCB President Campos Neto indicating that further rate cuts were coming and that QE in the future is entirely realistic. The BRL carry trade has been devastated with the short-term Selic rate now sitting at 3.75%, and clearly with room to fall.

Aside from this morning’s Initial Claims data, we see Continuing Claims (exp 16.74M), which run at a one week lag, and then we get US PMI data (Mfg 35.0, Services 30.0) at 9:45. Finally at 10:00 comes New Home Sales, which are forecast to have declined by 16% in March to 644K.

The big picture remains that economic activity is still slowing down around the world with the reopening of economies still highly uncertain in terms of timing. Equity markets have been remarkable in their ability to ignore what have been historically awful economic outcomes, but at some point, I fear that the next leg lower will be coming. As to the dollar, it remains the haven of choice, and so is likely to remain well bid overall for the foreseeable future.

Good luck and stay safe
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Tough Sledding

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The Minister, Prime, has declared
Come June, the UK is prepared
To tell the EU
If no deal’s in view
He’ll walk. Sterling bulls should be scared!

Meanwhile as the virus keeps spreading
Investors have found it’s tough sledding
There’s no end in sight
For this terrible blight
Thus, risk assets, most holders keep shedding

While Covid-19 remains the top story across all markets, this morning we did get to hear about something else that mattered, the UK position paper on their upcoming negotiations with the EU regarding trade terms going forward. The EU insists that if a nation wants to trade with them, that nation must respect (read adhere) to the EU’s rules on various issues, notably competition and state aid, but also things like labor conditions. (Funnily enough, China doesn’t seem to need to adhere to these rules). However, Boris has declared, “At the end of this year we will regain, in full, our political and economic independence.” Those are two pretty different sentiments, and while I believe that this is just tough talk designed to level set the negotiations, which begin next week, there is every chance that the UK does walk without a deal. Certainly, that is a non-zero probability. And the FX markets have taken it to heart as the pound has suffered this morning with the worst G10 performance vs. the dollar, falling -0.3%.

In fact, it is the only currency falling vs. the dollar today, which some have ascribed to the dollar’s waning status as a haven asset. However, I would argue that given the dollar’s remarkable strength this year, as outlined yesterday, the fact that some currencies are rebounding a bit should hardly be surprising. Undoubtedly there are those who believe that as Covid-19 starts to be seen in the US, it will have a deleterious impact on the US economy, and so selling dollars makes sense. But remember, the US economy is the world’s largest consumer, by a long shot, so every other country will see their own economies suffer further in that event.

A more salient argument is that the US is the only G10 country (except Canada which really is too small to matter) that has any monetary policy room of note, and in an environment where further monetary policy ease seems a given, the US will be able to be more aggressive than anyone else, hence, lower rates leading to a softer dollar. While that is a viable argument, in the end, as the ongoing demand for Treasuries continues to show, people need dollars, and will buy them, even if they’re expensive. Speaking of Treasuries, the 10-year yield has now fallen another 4bps to 1.29%, a new all-time low yield. And you can’t buy Treasuries using euros or yen!

So as things shape up this morning, it is another risk-off session with most equity markets around the world in the red (Nikkei -2.3%, Kospi -1.1%, DAX -2.5%, CAC -2.4% FTSE 100 -2.2%) and most haven assets (CHF +0.55%, JPY, +0.3%, Gold + 0.4%) performing well. The Covid-19 virus and national responses to the infection continues to be the lead story pretty much everywhere. In fact, last night’s US Presidential press conference was seen to be quite the fiasco as President Trump was unable to convince anyone that the US is on top of the situation. And while I’ve no doubt that things here will not run smoothly, it is not clear to me that things are going to run smoothly anywhere in the world. Fast moving viral epidemics are not something that large governments are very good at addressing. As such, I would look for things to get worse everywhere before they get better.

Looking at some specific FX related stories, perhaps the biggest surprise this morning is the euro’s solid rally, +0.5%, which was underpinned by surprisingly strong Economic Sentiment data for the month of February. This is in spite of the fact that growth figures throughout the major economies on the continent have been turning lower and the unknown consequences of Covid-19. And the euro’s strength has been sufficient to underpin the CE4 currencies, all of which are up by even greater amounts, between 0.6% and 0.85%. Again, these are currencies that have been under pressure for the best part of 2020, so a rebound is not that surprising.

Elsewhere in the EMG bloc, we continue to see weakness in the commodity producers, with oil falling more than 2% this morning and base metals also in the red. MXN (-0.7%), CLP (-0.45%), RUB (-0.3%) and ZAR (-0.3%) remain victims of the coming economic slowdown and reduced demand for their key exports.

This morning’s US session brings us a lot of data including; Initial Claims (exp 212K), Q4 GDP (2.1%) and Durable Goods (-1.5%, +0.2% ex transport). Yesterday’s New Home Sales data was much better than forecast (764K), which given the historically low mortgage rates in the US cannot be that surprising. We also continue to hear from Fed speakers, with each one explaining they are watching the virus situation closely and are prepared to act (read cut rates) if necessary, but thus far, the economic situation has not changed enough to justify a move. It is comments like these that highlight just how much of a follower the Fed has become, unwilling to lead a situation.

Speaking of the foibles of the Fed, I must mention one other thing that serves to demonstrate how out of touch they are with reality. Economists from the SF Fed released a paper explaining that, as currently constructed, the Fed will not be able to achieve their inflation goals because in the next downturn, with rates so low, the public worries that the Fed will not be able to add more support to the economy (my emphasis). Now, I think about the Fed constantly as part of my job, but I am willing to wager that a vanishingly small number of people in this country, far less than 1%, think about the Fed at all…ever! To think that the Fed’s inability to hit their target has anything to do with public sentiment about their power is extraordinary, and laughable!

At any rate, today’s session looks set to continue the risk-off stance, with equity futures down 0.75% or so, and while the dollar has been under pressure overnight, I expect that will be short-lived.

Good luck
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Turning the Screws

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There once was a great city state
That introduced rules and debate
However its heirs
Lead muddled affairs
Thus Roman woes proliferate

Meanwhile from the UK, the news
Gave Johnson’s opponents the blues
Improvements reported
In confidence thwarted
The Sterling bears, turning the screws

Italian politics has once again risen to the top of the list of concerns in the Eurozone. This morning, 5-Star leader, Luigi Di Maio, is on the cusp of resigning from the government, thus forcing yet another election later this year. The overriding concern from the rest of Europe is that the man leading the polls, Silvio Matteo, is a right-wing populist and will be quick to clash with the rest of the EU on issues ranging from fiscal spending to immigration policy. In other words, he will not be welcome by the current leading lights as his views, and by extension the views of the millions who vote for him, do not align with the rest of the EU leadership. Of course, there has been steady dissent from that leadership for many months, albeit barely reported on this side of the Atlantic. For example, the gilets jaunes continue to protest every week around the country, as they voice their disagreement with French President Macron’s attempts to change the rules on issues ranging from pensions to taxes to labor regulations. And they have been protesting for more than a year now, although the destructive impact has been greatly reduced from the early days. As well, there are ongoing protests in the Catalonia region of Spain with separatists continuing to try to make their case. The point is that things in Europe are not quite as hunky-dory as the leadership would have you believe.

However, for today, it is Italy and the potential for more dissent regarding how Europe should be managed going forward. The result has been the euro reversing its early 0.25% gains completely, actually trading slightly lower on the day right now. While there is no doubt the recent Eurozone data has been better than expected, it remains pretty awful on an absolute basis. But markets respond to movements at the margin, so absent non-market events, like Italian political ructions, it is fair to expect the euro to benefit on this data. In fact, there is an ongoing evolution in the analyst community as a number of them have begun to change their ECB views, with several implying that the ECB’s next move will be policy tightening, and some major Investment Banks now forecasting 10-year German bunds to trade back up to 0.0% or even higher by the end of the year. We shall see. Certainly, if Madame Lagarde hints at tighter policy tomorrow, the euro will benefit. But remember, the ECB is still all-in on QE, purchasing €20 billion per month, so trying to combine the need to continue QE alongside a discussion of tighter policy seems a pretty big ask. At this point, the euro remains under a great deal of pressure overall, but I do expect this pressure to ebb as the year progresses and see the dollar decline eventually.

As to the UK, the hits there just keep on coming. This morning, the Confederation of British Industry (CBI), which is essentially the British Chamber of Commerce, reported that both orders and price data improved modestly more than expected, but more importantly their Optimism Index jumped to +23 from last month’s -44, which is actually its highest level since April 2014, well before Brexit was even a gleam in then-PM David Cameron’s eye. Not surprisingly, the pound has rallied further on this positive jolt, jumping 0.5% this morning and is the leading performer against the dollar overall today. It should also be no surprise that the futures market has reduced its pricing for a BOE rate cut next week to a 47% probability, down from 62% yesterday and 70% on Friday. Ultimately, I think that Carney and company would rather not cut if at all possible, given how little room they have with the base rate at 0.75% currently. If we see solid PMI flash data on Friday, I would virtually rule out any chance for a cut next week, and expect to see the pound rally accordingly.

Away from those two stories though, market activity has been far less interesting. The rest of the G10, beyond the pound, is generally within 10bps of yesterday’s closing levels. As to the Emerging markets, the big winner has been ZAR, which has rallied 0.65% after CPI rose to 4.0%, although that remains well below the midpoint of the SARB’s target range of 3.0% – 6.0%. Expectations are for continued policy ease and continue investment inflows to help support the currency. But other than the rand, it has been far less interesting in the FX market.

The ongoing fears over the spread of the coronavirus seem to be abating as China has been aggressively working to arrest the situation, canceling flights out of Wuhan and being remarkably transparent with respect to every new case reported. In fact, equity markets around the world have collectively decided that this issue was a false alarm and we have seen stocks rally pretty much everywhere (Italy excepted) with US futures pointing higher as well.

And that really sums up the day. The ongoing impeachment remains outside of the framework of the market as nobody believes that President Trump will be removed from office. The WEF participants continue to demonstrate their collective ability to pontificate about everything, but do nothing. And so, we need to look ahead to today’s data, and probably more importantly to equity market performance for potential catalysts for movement. Alas, the only US data of note is Existing Home Sales (exp 5.43M), something that rarely moves markets. This leaves us reliant on equity market sentiment to drive the FX market, and with risk definitively on this morning, I expect to see EMG currencies benefit while the dollar suffers mildly.

Good luck
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Cashiered!

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In China, a virus appeared
That seems to be worse than first feared
It’s spreading so quickly
That markets turned sickly
And stock market bulls got cashiered!

Some of you may remember the SARS virus from the winter of 2002-3, when a respiratory illness, emanating from Guangdong in China, spread quickly around the world resulting in some 800 odd deaths, but more importantly from the market’s perspective, created a very real risk-off environment. As an example, from January through March of 2003, the Dow Jones fell more than 16%, largely on fears that the virus would continue to spread and ultimately reduce economic activity worldwide. Fortunately, that was not the case, as those diagnosed with the virus were isolated and the spread of the disease ended. Naturally, risk was reignited and all was right with the world…until 2008.

I remind everyone of this history as this morning, there is another coronavirus that has been discovered in central China, this time Wuhan seems to be ground zero, and has begun to spread rapidly from human to human. In just a few weeks, more than 200 cases have been reported with several deaths. However, the big concern is that the Lunar New Year celebration begins on Saturday and this is the heaviest travel time of the year within China and for Chinese people around the world. And if your goal was to spread a virus, there is no better way to do so than by getting infected people on airplanes and sending them around the world! Of course, this is nobody’s goal, however it is a very real potential consequence of the confluence of the new virus and the Lunar New Year. The market has reacted just as expected, with risk aversion seen across markets (equities lower, bonds higher) and specific stocks reacting to anticipated direct effects. For example, every Asian airline stock has been aggressively sold lower, while manufacturers of things like latex gloves and face masks have rallied sharply.

Now, while none of this should be surprising, a quick look at market levels shows us that the current impact of this virus has been widespread, at least from a market perspective. For example, equity markets have suffered across the board, although Asia was worst hit (Nikkei -0.9%, Hang Seng -2.8%, Shanghai -1.4%, DAX -0.25%, CAC -0.85%, FTSE -1.0%). Treasury yields have fallen 2bps, although bund yields are actually higher by 0.5bps this morning on the back of stronger than expected ZEW survey data.

And in the currency market, the dollar is broadly, although not universally, higher. It can be no surprise that APAC currencies are under the most pressure given the risk-off causality, with KRW -0.75% and CNY -0.55%, its largest daily decline since last August. But we are also seeing weakness throughout LATAM with both BRL (-0.45%) and MXN (-0.35%) among the day’s worst performers.

In the G10 space, the results have been a bit more mixed, and actually seem more related to data than the general risk sentiment. For example, the pound is today’s big winner, +0.35% after UK Employment data was released with much better than expected results. While the Unemployment Rate remained unchanged at 3.8%, the 3M/3M Employment Change rose 208K, nearly double expectations and the first really good piece of data seen from the UK in two weeks (recall PMI data was a bit better than expected). This has resulted in some traders questioning whether the BOE will cut rates next week after all. Futures markets continue to price a 61% probability, although that is down from 70% on Friday.

Elsewhere, the euro reversed small early losses and now has small gains after the ZEW Expectations data (26.7 vs. 15.0 expected), while the yen has benefitted ever so slightly on two different fronts. First, the broad risk-off market flavor has helped keep the yen underpinned, but more importantly, the BOJ met last night, and although they left policy unchanged, as universally expected, there continues to be a growing belief that the next move there is going to be a tightening! This was reinforced by the BOJ raising its growth estimates for both 2019 (0.8%, up from 0.6%) and 2020 (0.9% up from 0.7%). Of course, offsetting that somewhat was the decline in the BOJ’s inflation forecast, down to 0.8% in 2020 from the previous expectation of 0.9%. In the end, it is difficult to get overly excited about the Japanese economy’s prospects, with a much greater likelihood of significant yen strength emanating from a more severe risk-off event.

Looking ahead to the week, not only is the Fed in its quiet period, but there is a very limited amount of US data set to be released.

Wednesday Existing Home Sales 5.43M
Thursday Initial Claims 214K
  Leading Indicators -0.2%

Source: Bloomberg

Of course, there are two other events this week that may have a market impact, although my personal belief is that neither one will do so. This morning the US Senate takes up the Articles of Impeachment for President Trump that were finally proffered by the House of Representatives. And while the politicos in Washington and the talking heads on TV are all atwitter over this situation, financial markets have collectively yawned throughout the entire process. I see no reason for that stance to change at this point.

The other event is the World Economic Forum in Davos, the annual get together of the rich and famous, as well as those who want to be so, to pontificate on all things they deem important. However, it beggars belief that anything said from this conference is going to change any investment theories, let alone any fiscal or monetary policies. This too, from the market’s perspective, is unlikely to have any impact at all.

And that’s really it for today. Lacking catalysts, I anticipate a quiet session overall. Short term, the dollar still seems to have some life. But longer term, I continue to look for a slow decline as the effects of the Fed’s QE begin to be felt more keenly.

Good luck
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Feelings of Disquietude

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In Germany, growth was subdued
In England, inflation’s now food
For thought rates will fall
As hawks are in thrall
To feelings of disquietude

This morning is a perfect lesson in just how little short-term movement is dependent on long-term factors like economic data. German GDP data was released this morning showing that for 2019 the largest economy in the Eurozone grew just 0.6%, which while expected was still the slowest rate in six years. And what’s more, forecasts for 2020 peg German GDP to grow at 0.7%, hardly enticing. Yet as I type, the euro is the best performer in the G10 space, having risen 0.2%. How can it be that weak data preceded this little pop in the currency? Well, here is where the short-term concept comes in; it appears there was a commercial order going through the market that triggered a series of stop-loss orders at 1.1140, and lo and behold, the euro jumped another 0.15%. My point is that any given day’s movement is only marginally related to the big picture and highly reliant on the short term flows and activities of traders and investors. So forecasts, like mine, that call for the euro to rally during this year are looking at much longer term issues, which will infiltrate trading views over time, not a prescription to act on intraday activity!

Meanwhile, the pound has come under modestly renewed pressure after CPI in the UK surprisingly fell to 1.3% with the core reading just 1.4%. This data, along with further comments by the most dovish BOE member, Michael Saunders, has pushed the probability of a UK rate cut at the end of the month, as measured by futures prices, up to 65%. Remember, yesterday this number was 47% and Friday just 25%. At this point, market participants are homing in on the flash PMI data to be released January 24 as the next crucial piece of data. The rationale for this is that the weakness that we have seen recently from UK numbers has all been backward-looking and this PMI reading will be the first truly forward looking number in the wake of the election in December. FYI, current expectations are for a reading of 47.6 in Manufacturing and 49.4 in Services, but those are quite preliminary. I expect that they will adjust as we get closer. In the meantime, look for the pound to remain under pressure as we get further confirmation of a dovish bias entering the BOE discussion. As to Brexit, it will happen two weeks from Friday and the world will not end!

Finally, the last G10 currency of interest today is the Swiss franc, which is vying with the euro for top performer, also higher by 0.2% this morning, as concern has grown over its ability to continue its intervention strategy in the wake of the US adding Switzerland back to the list of potential currency manipulators. Now, the SNB has been intervening for the past decade as they fight back against the franc’s historic role as a safe haven. The problem with that role is the nation’s manufacturing sector has been extraordinarily pressured by the strength of the franc, thus reducing both GDP and inflation. It seems a bit disingenuous to ask Switzerland to adjust their macroeconomic policies, as the US is alleged to have done, in order to moderate CHF strength given they already have the lowest negative interest rates in the world and run a large C/A surplus. But maybe that’s the idea, the current administration wants the Swiss to be more American and spend money they don’t have. Alas for President Trump, that seems highly unlikely. A bigger problem for the Swiss will be the fact that the dollar is likely to slide all year as QE continues, which will just exacerbate the Swiss problem.

Turning to the emerging market bloc, today’s biggest mover is BRL, where the real is opening lower by 0.5% after weaker than expected Retail Sales data (0.6%, exp 1.2%) point to ongoing weakness in the economy and increase the odds that the central bank will cut rates further, to a new record low of just 4.25%. While this still qualifies as a high-yielder in today’s rate environment, ongoing weakness in the Brazilian economy offer limited prospects for a reversal in the near-term. Do not be surprised to see BRL trade up to its recent highs of 4.25 before the bigger macro trend of USD weakness sets in.

And that’s been today’s currency story. I have neglected the signing of the phase one trade deal because that story has been so over reported there is exactly zero I can add to the discussion. In addition, the outcome has to be entirely priced into the market at this point. Equity markets have had difficulty trading higher during the past two sessions, but they certainly haven’t declined in any serious manner. As earnings season gets underway, investors seem to have turned their attention to more micro issues rather than the economy. Treasury yields have been edging lower, interestingly, despite the general good feelings about the economy and risk, but trying to determine if the stock or bond market is “correct” has become a tired meme.

On the data front, this morning brings PPI (exp 1.3%, 1.3% core) but given that we saw CPI yesterday, this data is likely to be completely ignored. We do get Empire Manufacturing (3.6) and then at 2:00 the Fed releases its Beige Book. We also hear from three Fed speakers, Harker, Daly and Kaplan, but at this point, the Fed has remained quite consistent that they have little interest in doing anything unless there is a significant change in the economic narrative. And that seems unlikely at this time.

And so, this morning the dollar is under modest pressure, largely unwinding yesterday’s modest strength. It seems unlikely that we will learn anything new today to change the current market status of limited activity overall.

Good luck
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