Edit
As Nassim Taleb instructed, we should not be fooled by randomness. If you see
six red results in a row at a roulette table, do not conclude the game is rigged. If you flip a coin, and it is tails six consecutive times,
the contest is not necessarily rigged.
six red results in a row at a roulette table, do not conclude the game is rigged. If you flip a coin, and it is tails six consecutive times,
the contest is not necessarily rigged.
Today has the
making of the sixth consecutive Friday that the dollar gains against the euro
and yen. The Australian dollar has fallen
six of the past seven Friday’s and is down today. We note that this
pattern has held in weeks that the dollar rose and in weeks, like this one,
which the dollar has fallen. If there is a narrative that makes sense of
this pattern, it may simply be an effort to reduce short dollar positions ahead
of weekends.
making of the sixth consecutive Friday that the dollar gains against the euro
and yen. The Australian dollar has fallen
six of the past seven Friday’s and is down today. We note that this
pattern has held in weeks that the dollar rose and in weeks, like this one,
which the dollar has fallen. If there is a narrative that makes sense of
this pattern, it may simply be an effort to reduce short dollar positions ahead
of weekends.
Today’s firmer
dollar was partly signaled by the loss of
its downside momentum with 12 hours or so of the FOMC decision, which was
hardly surprising, even if disappointing. The Fed has painted itself into a
corner. Although Yellen conditioned a hike on continued improvement in
the labor market and no new global risks, the market remains unconvinced.
The chances that the Fed funds target is 50-75 bp at the end of the year
is less than 50%.
dollar was partly signaled by the loss of
its downside momentum with 12 hours or so of the FOMC decision, which was
hardly surprising, even if disappointing. The Fed has painted itself into a
corner. Although Yellen conditioned a hike on continued improvement in
the labor market and no new global risks, the market remains unconvinced.
The chances that the Fed funds target is 50-75 bp at the end of the year
is less than 50%.
Japan’s Finance
Minister was quoted saying that deflation is the biggest problem for the
Japanese economy. This
seems to wrong diagnosis of the problem. The problem is growth
potential. The BOJ estimates that potential growth is only 0.2%.
The challenge is not that Japan is expanding below its potential.
Its potential is too low. Today’s data confirms the economy is
expecting. The preliminary manufacturing PMI rose to 50.3. It is
back in expansion mode (above 50) for the first time since February. The
All-Industries Activity Index, a proxy for GDP rose 0.3%, a little more than
expected.
Minister was quoted saying that deflation is the biggest problem for the
Japanese economy. This
seems to wrong diagnosis of the problem. The problem is growth
potential. The BOJ estimates that potential growth is only 0.2%.
The challenge is not that Japan is expanding below its potential.
Its potential is too low. Today’s data confirms the economy is
expecting. The preliminary manufacturing PMI rose to 50.3. It is
back in expansion mode (above 50) for the first time since February. The
All-Industries Activity Index, a proxy for GDP rose 0.3%, a little more than
expected.
After bouncing
off JPY100 yesterday, the dollar reached almost JPY101.25 in Asia but met sellers that have pushed it back
to JPY100.80. Additional intraday support is seen near
JPY100.50. Japanese markets were closed yesterday,
but it appears that institutions were eager to lock in the dramatic backing up
of long-term yields that were triggered by BOJ action.
off JPY100 yesterday, the dollar reached almost JPY101.25 in Asia but met sellers that have pushed it back
to JPY100.80. Additional intraday support is seen near
JPY100.50. Japanese markets were closed yesterday,
but it appears that institutions were eager to lock in the dramatic backing up
of long-term yields that were triggered by BOJ action.
The main news
from Europe is the flash PMI. Manufacturing rose on the aggregate level
to 52.6 from 51.7. This
was marred by the decline in services, seemingly emanating from Germany.
The aggregate service reading fell to
52.1 from 52.8. The composite fell
to a 20-month low of 52.6. The year’s average until now was 53.1.
from Europe is the flash PMI. Manufacturing rose on the aggregate level
to 52.6 from 51.7. This
was marred by the decline in services, seemingly emanating from Germany.
The aggregate service reading fell to
52.1 from 52.8. The composite fell
to a 20-month low of 52.6. The year’s average until now was 53.1.
The German
service sector was at 54.4 as recently as July. It fell in August
and fell further in September. It stands at 50.6. Manufacturing
edged higher to 54.3 from 53.6. The composite eased to 52.7 from 53.6.
It is the lowest since May. If there is a silver lining in the
disappointing German data, it is economic weakness may, over time, prompt more
stimulus policies.
service sector was at 54.4 as recently as July. It fell in August
and fell further in September. It stands at 50.6. Manufacturing
edged higher to 54.3 from 53.6. The composite eased to 52.7 from 53.6.
It is the lowest since May. If there is a silver lining in the
disappointing German data, it is economic weakness may, over time, prompt more
stimulus policies.
France showed
improvement in manufacturing, services and its composite. Although comparisons between countries is difficult with this time series, it is
interesting to note that the French composite of 53.3 (from 51.9) is above the
German composite (52.7). It is the best composite reading in France
since last October. However, the manufacturing PMI remained below 50
(49.5) where it has been since February. The services reading rose to
54.1 from 52.3.
improvement in manufacturing, services and its composite. Although comparisons between countries is difficult with this time series, it is
interesting to note that the French composite of 53.3 (from 51.9) is above the
German composite (52.7). It is the best composite reading in France
since last October. However, the manufacturing PMI remained below 50
(49.5) where it has been since February. The services reading rose to
54.1 from 52.3.
The euro has been confined to less than a 25 tick range
around yesterday’s North American close. Intraday technicals warn of scope for a
mild push higher into the $1.1225 area, before coming back off into the
weekend.
around yesterday’s North American close. Intraday technicals warn of scope for a
mild push higher into the $1.1225 area, before coming back off into the
weekend.
Sterling and
the New Zealand dollar are competing for the weakest of the majors today. Kiwi has dropped 1.25 cents since the RBNZ indicated
it continued to anticipate further monetary easing. The loss does little more
unwind the previous three days of gains. Yesterday was the first day in
five that sterling did not trade below
$1.30. It dipped back below there today.
the New Zealand dollar are competing for the weakest of the majors today. Kiwi has dropped 1.25 cents since the RBNZ indicated
it continued to anticipate further monetary easing. The loss does little more
unwind the previous three days of gains. Yesterday was the first day in
five that sterling did not trade below
$1.30. It dipped back below there today.
The North
American session features four Fed speakers, all regional presidents:
Harker, Mester, Kaplan, and
Lockhart. Insight
after the controversial FOMC meeting (three dissents and three seemingly
opposed to a rate hike this year via the dot plots) will be helpful, but it may
not come today. Next week 12 of the 17 Fed officials will speak,
including Yellen and Fischer, but also Governor Tarullo and Chicago President
Evans who were likely among the officials who do not think a hike this year is
warranted.
American session features four Fed speakers, all regional presidents:
Harker, Mester, Kaplan, and
Lockhart. Insight
after the controversial FOMC meeting (three dissents and three seemingly
opposed to a rate hike this year via the dot plots) will be helpful, but it may
not come today. Next week 12 of the 17 Fed officials will speak,
including Yellen and Fischer, but also Governor Tarullo and Chicago President
Evans who were likely among the officials who do not think a hike this year is
warranted.
Markit’s
preliminary assessment of the US manufacturing PMI will be reported, but in terms of
economic data, the focus will be on Canada. Canada releases its July retail
sales and August CPI. The median forecast is for a 0.1% increase in headline
retail sales and a 0.5% increase excluding autos. Headline CPI may tick
up to 1.4% from 1.3%, while the core rate may slip to 2.0% from 2.1%.
preliminary assessment of the US manufacturing PMI will be reported, but in terms of
economic data, the focus will be on Canada. Canada releases its July retail
sales and August CPI. The median forecast is for a 0.1% increase in headline
retail sales and a 0.5% increase excluding autos. Headline CPI may tick
up to 1.4% from 1.3%, while the core rate may slip to 2.0% from 2.1%.
The Canadian
dollar is little changed ahead of the
start of the North American session. It is holding on to 1.3% gain this
week on the back of a weaker US dollar and higher oil prices. The US
dollar bounced off of CAD1.30 yesterday and neared CAD1.3100 in Europe, but is
coming off again, and looks poised to retest yesterday’s lows. Oil is pulling
back after firming to two-week highs
yesterday. Much focus is on next week’s meeting in Algiers.
Meetings between Saudi and Iranian officials spurred speculation of an
agreement, but reports suggest an deal remains elusive. Given the high
level of output, and the coming online of the
Kazakstan field, a freeze in production
may not be sufficient to sustain the recovery in oil prices.
dollar is little changed ahead of the
start of the North American session. It is holding on to 1.3% gain this
week on the back of a weaker US dollar and higher oil prices. The US
dollar bounced off of CAD1.30 yesterday and neared CAD1.3100 in Europe, but is
coming off again, and looks poised to retest yesterday’s lows. Oil is pulling
back after firming to two-week highs
yesterday. Much focus is on next week’s meeting in Algiers.
Meetings between Saudi and Iranian officials spurred speculation of an
agreement, but reports suggest an deal remains elusive. Given the high
level of output, and the coming online of the
Kazakstan field, a freeze in production
may not be sufficient to sustain the recovery in oil prices.
It is Friday and the Dollar is Firmer Again
Reviewed by Marc Chandler
on
September 23, 2016
Rating: