The day after the FOMC meeting has the market scratching around for something to do – the new FOMC statement was very marginally hawkish, perhaps particularly relative to the weak GDP data and very weak Consumer Confidence survey for January that we have seen this week, but the language wasn’t dramatic enough, nor the dissenting single vote noteworthy enough to move the needle much, as we await Friday’s US employment report.
The modest treasury and Bunds rally has meant a very modest consolidation in the JPY crosses, but if we look back at USDJPY, hardly anything has happened all week. Again, we await the payrolls data there for the next move of any note as the US 10-year yield nudged to the 2.00% level in recent days. A strong bond rally and pullback from that level due to a weak employment report could see USDJPY staging a chunky correction lower, while a strong follow up move higher in yields (bond sell-off), could mean at least one more surge to 92.00 or above in the days ahead.
RBNZ slightly hawkish
The RBNZ statement prominently mentioned concern on house prices and household credit growth in its statement, saying that “The bank does not want to see financial stability or inflation risks accentuated by housing demand getting too far ahead of supply.” New Zealand rates hardly budged on this development, but the kiwi currency did, with AUDNZD rushing back lower and NZDUSD staging a rally.
The most interesting question for the likes of New Zealand, Australia, Canada, Norway and Sweden is that all of these countries are in late stage credit bubbles and have a good deal of pain in store on the other side of this cycle, the question being when the cycle of interest rates shifts sufficiently to pop the bubble. Australia is in the most advanced stages of this process, but the negative contagion has failed to pick up much speed so far.
Don’t forget that tomorrow is the first of the month, and thus “world manufacturing PMI day”. Japan kicked things off last night with a slightly higher (though still recessionary) reading than in December. Tonight, we have the Australian and the official and HSBC Chinese manufacturing surveys, followed by European/UK and US surveys tomorrow.
Next week’s ECB meeting is shaping up as an important one. Draghi and company can use the recent Euro strength as an excuse to downgrade their assessment of inflation risks and cut rates by 25 bps in the hopes that this also helps to cool the Euro rally. Otherwise, it will be all about guidance on the potential for some kind of easing that can free up credit in the banking system, as we have seen a kind of de facto tightening as some EU banks repay their LTRO’s. As well, of course, the severity of any message related to the strength of the Euro and observations on competitive devaluation will be important, though EU politicians can pipe up on that account at any time.
Economic Data Highlights
- Japan Jan. Markit/JMMA Manufacturing PMI out at 47.7 vs. 45.0 in Dec.
- Japan Dec. Industrial Production rose +2.5% MoM and fell -7.5% YoY vs. +4.1%/-5.6% expected, respectively and vs. -5.5% YoY in Nov.
- UK Jan. GfK Consumer Confidence out at -26 vs. -28 expected and -29 in Dec.
- Japan Dec. Labor Cash Earnings fell -1.4% YoY vs. -1.1% in Nov.
- Germany Dec. Retail Sales out at -1.7% MoM and -4.7% YoY vs. -0.1%/-1.5% expected, respectively and vs. -0.6% YoY in Nov.
- Germany Jan. Unemployment Change ouat at -16k vs. +8k expected and -2k in Dec.
- Germany Jan. Unemployment Rate out at 6.8% vs. 6.9% in Dec. and 6.9% in Dec.
- Norway Dec. Retail Sales out at +0.2% MoM and -1.6% YoY vs. +2.4% YoY in Nov.
- Germany Jan. Consumer Price Index (1300)
- Canada Nov. Gross Domestic Product (1330)
- US Dec. Personal Income and Spending (1330)
- US Dec. PCE Deflator and PCE Core (1330)
- US Weekly Initial Jobless Claims (1330)
- US Jan. NAPM Milwaukee (1400)
- US Jan. Chicago PMI (1445)
- US Weekly Bloomberg Consumer Comfort Survey (1445)
- Australia Jan. AiG Performance of Manufacturing Index (2230)
- Australia Jan. RPData-Rismark House Price Index (2300)
- Japan Dec. Jobless Rate (2330)
- Japan Dec. Overall Household Spending (2330)
- Australia Q4 Producer Price Index (0030)
- China Jan. Manufacturing PMI (0100)
- China Jan. HSBC Manufacturing PMI (0145)