ronaldinhood
Super Active Member
- Messages
- 9,352
- Joined
- Apr 3, 2006
- Messages
- 9,352
- Reaction score
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The Big Picture
The market has doubts The situation in Ukraine continues to deteriorate and tensions between Russia and the West continue to rise, but the market’s reaction shows some doubts about the impact on the rest of the world. Gold finally managed to get a lift from the tension and even outperformed silver overnight, while Fed Funds rate expectations fell modestly despite good US economic indicators. RUB was the second-worst-performing currency of those we track despite a 50 bps rate hike as S&P cut the country’s debt rating to the lowest investment grade warned that more cuts may follow if sanctions worsen. But where else to find any signs that something is going on in the world? USD is barely changed against most of the G10 currencies this morning from its level Friday morning, and a 20 pip fall in USD/JPY barely counts as flight to safety – not to mention that USD/CHF is virtually unchanged and EUR/USD had a 26-pip range on Friday. And oil prices are low too. It seems that the market does not see much possibility of spillover from the crisis. The big exception seems to be wheat, which gained almost 5% last week and is up another 0.6% this morning, as Russia is the world’s 5th largest wheat exporter, followed by Ukraine. Nickel also continues to benefit as Russia is one of the world’s biggest producers of the metal. But so far, the market seems to think this is an isolated event that will not have much impact on the rest of the world. That’s also what people thought when people with subprime mortgages in the US started to default, if I remember correctly.
Japanese retail trade was up 11% yoy in March, compared with a 3.6% yoy rise in February. That’s a gauge of the impact of the hike in the consumption tax from April 1st as people rushed to stock up on goods that they would need. Large retailers’ sales rose 16.1% yoy vs only 1.3% yoy in February. We now await the April data to see how much of a payback there will be from this increased consumption – we can expect a slump in demand for the next several months.
There are no major releases today in Europe. From the US we get pending home sales for March, which are expected to be up slightly on a mom basis, compared with the decline in February. That would at least support the idea of some increase in home sales, which would be a relief for the markets. The Dallas Fed manufacturing index is forecast to rise, which could help sentiment towards the dollar.
The big event of the week will be the FOMC meeting Tuesday and Wednesday. There is no press conference after the meeting so the communique is all we will get. Recent data has largely confirmed the Fed’s forecast that the slowdown in the winter was due to unusually bad weather and as the weather improves, so too does the economy. Plus with bond yields lower and stock prices higher than when the Fed began tapering off its bond purchases in January, there is no reason for them to change course. Hence I expect them to continue reducing their bond purchases by $10bn and for the statement following the meeting to be virtually unchanged, which is likely to be neutral for the dollar. The real excitement will come on 21 May, when the minutes of the meeting are released and we get a view of the discussion about when the Fed should start raising rates. That’s the big point of disagreement within the FOMC and the point that the market wants to clarify.
The market has doubts The situation in Ukraine continues to deteriorate and tensions between Russia and the West continue to rise, but the market’s reaction shows some doubts about the impact on the rest of the world. Gold finally managed to get a lift from the tension and even outperformed silver overnight, while Fed Funds rate expectations fell modestly despite good US economic indicators. RUB was the second-worst-performing currency of those we track despite a 50 bps rate hike as S&P cut the country’s debt rating to the lowest investment grade warned that more cuts may follow if sanctions worsen. But where else to find any signs that something is going on in the world? USD is barely changed against most of the G10 currencies this morning from its level Friday morning, and a 20 pip fall in USD/JPY barely counts as flight to safety – not to mention that USD/CHF is virtually unchanged and EUR/USD had a 26-pip range on Friday. And oil prices are low too. It seems that the market does not see much possibility of spillover from the crisis. The big exception seems to be wheat, which gained almost 5% last week and is up another 0.6% this morning, as Russia is the world’s 5th largest wheat exporter, followed by Ukraine. Nickel also continues to benefit as Russia is one of the world’s biggest producers of the metal. But so far, the market seems to think this is an isolated event that will not have much impact on the rest of the world. That’s also what people thought when people with subprime mortgages in the US started to default, if I remember correctly.
Japanese retail trade was up 11% yoy in March, compared with a 3.6% yoy rise in February. That’s a gauge of the impact of the hike in the consumption tax from April 1st as people rushed to stock up on goods that they would need. Large retailers’ sales rose 16.1% yoy vs only 1.3% yoy in February. We now await the April data to see how much of a payback there will be from this increased consumption – we can expect a slump in demand for the next several months.
There are no major releases today in Europe. From the US we get pending home sales for March, which are expected to be up slightly on a mom basis, compared with the decline in February. That would at least support the idea of some increase in home sales, which would be a relief for the markets. The Dallas Fed manufacturing index is forecast to rise, which could help sentiment towards the dollar.
The big event of the week will be the FOMC meeting Tuesday and Wednesday. There is no press conference after the meeting so the communique is all we will get. Recent data has largely confirmed the Fed’s forecast that the slowdown in the winter was due to unusually bad weather and as the weather improves, so too does the economy. Plus with bond yields lower and stock prices higher than when the Fed began tapering off its bond purchases in January, there is no reason for them to change course. Hence I expect them to continue reducing their bond purchases by $10bn and for the statement following the meeting to be virtually unchanged, which is likely to be neutral for the dollar. The real excitement will come on 21 May, when the minutes of the meeting are released and we get a view of the discussion about when the Fed should start raising rates. That’s the big point of disagreement within the FOMC and the point that the market wants to clarify.
