Tēnā koutou katoa, TGIF & Happy Macro Fri 20 Sep 2019 – APAC Global Macro Morning Call
O/N, Levels & Thoughts:
Econ Wise: We got a beat in 2Q NZ GDP to 2.1%a 2.0%e 2.5%p. In Australia whilst headline jobs data beat 34.7k vs. 15.0k that was expected, there was a large reduction in full-time -15.5k vs. an increase in part-time workers +50.2k, the unemployment rate also kicked up to 5.3%a vs. 5.2%e/p. OECD cuts global growth to 2.9% for 2019
We also had central bank rate decisions out Indonesia, Taiwan, Japan, Switzerland & the United Kingdom… <= respective links to their statements… latter four left rates unchanged at -0.10%, -0.75% & +0.75% respectively. Bank Indonesia cut rates by 25bp to 5.25% in-line with expectations
Bottom line from KVP’s side, its really all about the Fed (global impact wise)… ECB has even less current unity within it ranks for looser monetary policy
One key aspect about the “lack of expected response” from both the ECB & the Fed, is that it moves the ball closer to the fiscal policy side of things. The unintended consequences of Central Bankers continuing to be aggressive on the QE taps post GFC, is that they ended up doing all the heavy lifting, allowing government policy makers - fiscal stimulus and structural change perspectives – to easily step back because there was not enough pressure on them.
This is the paradox of monetary & fiscal policy – the latter only tends to really be activated during periods of shocks & recessions to the economy (despite it potentially having greater sustainable positive implications – i.e. Trump tax break bad on long-run for the economy, multi-trillion dollar infrastructure build good for long-run of the economy), whereas the latter is meant to smoothen out the volatility in the business cycle… yet all it does is build up the cancer (debt & complacency) that will eventually have to be flushed out… You can run from Global Macro for a long time, yet you can never hide forever… Its NEVER Different This Time…
The Fed continues to pump liquidity into the system with $75bn injected, this will mark the 3rd day in a row where the Fed has been active in the repo market… we can likely expect them to be present today (Fri Sep 20)
Levels: Weaker USD driven by a tiny pop in Euro & a bigger strengthening on the yen vs. the USD…. DXY at 98.27 -0.29%. Meanwhile cable 1.2523 +0.43% got to 2month highs, as prospects of a successful Oct 31 deal seemed to increase.
UST are still round the 1.78-1.80% lvls they were coming out of the FOMC decision. We have bunds 7 JGBs around -50bp & -21bp.
Brent crude reversed a two days of a big pullback to close +1.26% to 64.40, perhaps linked to Trump asking for “very significant” sanctions on Iran, as well as hinting at potential conflict – as we have flagged a few times on Macro Monday, the prospects for a conflict (any conflict) as part of a re-election strategy in 2020, is far from 0. It would be a page out of Bush’s re-election strategy on Iraq.
Gold 1498 +0.34% & Silver 17.78 +0.19% a touch higher, SPX 3007 flat for the session, with EZ EQ having a much more solid bullish session. The EuroStoxx bank index flew to 88.74 +2.42%.
- JP: National Core CPI
- NZ: Credit Card Spending
- EZ: GER PPI, Cons. Conf.
- UK: BoE Quarterly Bulletin
- US: FOMC members Williams & Rosengren (latter abstained for no rate cuts) are speaking
Next WK – So what does week #39 bring to the table?
- ECON: Flash PMIs across the board, including final 2Q GDP out of the US +2.0%e/p where durable goods, personal spending + income alongside the PCE will key
- Central Banks: Rate decision out of RBNZ (last time they cut, they gave the market a shocker with a -50bp cut) here is the link to their last statement (slide 4), as well as Thailand, Philippines & Mexico
- Monetary Policy Makers: A lot of Fed speakers will be on the tape, plus we should also have central bank heads Draghi, Kuroda & Lowe dur to speak as well
- Just a very key point here… anything coming out of Bullard (wanted a -50bp cut) or Rosengreen & George (both wanted no cuts) is that more important to monitor in the future, for a change in their stance. I.e. Bullard turning hawkish, or George/Rosengreen turning dovish!