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If ever there was a time to remain on our guard and protect our money and our investments the time is now.
The global economic strategies are riddled with politics.
From what Bloomberg are calling a near death experience in Deutsche Bank to the real prospect of a Trump victory , via a deep suspicion that the Swiss National Bank have been up to intervention practices to cheapen their currency.
And we know what happened last time.
Extreme caution ahead of the US presidential election is advised.
It is now a veritable black swan that has given us plenty of warning and swimming threateningly beside the major catalysts, in an environment of growing distrust of central bank policy worldwide in terms of both jaw-boning and effectiveness.
These are dangerous times despite the fact that Germany will step in to support its major bank, the vulnerabilities in the system have been exposed and the risks are systemic and again global.
Let’s take a look first at the week’s news as we keep this bigger picture in mind.
The Week In Review.
On the face of it,data-wise it should have been a quiet week in relative terms. The debacle which is not yet resolved in Deutsche Bank stole the show. A few speeches from Kuroda and Draghi did not add much, Poloz in Canada saw a recovery albeit a slow 3-5 years. The US saw an improvement in home sales; always a good sign, but a fall in pending home sales. Not so good.
A whole bunch of Fed speak again, both hawks and doves displaying perhaps a growing division and all trying to sound convincing. The confusion and speculation will continue.
German CPI crept up to o.1%, still less than impressive but the real problem showed up in retail data now at -0.4% and falling. Japanese CPI, also fell to -0.5%, whilst Chinese Caixin PMI held on to 50.1, dangerously close to the 50 barrier.
In GDP results, The UK nudged up and beat the estimate…a long way to go but now at 0.7%, the USA a fairly solid 1.4% also beat the estimate as did Canada, at 0.5%.
The USD always gives us a mixed bag which fuels Fed expectation and they do seem to cling more to labour stats than to inflation indicators. Still, the fall to zero in personal spending was not what they are looking for.
The Week Ahead
We start Sunday, with Japanese manufacturing and non-manufacturing.
On Monday, PMI’s from Europe and the UK, The US ISM manufacturing PMI. This is a major pice of data in the context of Fed policy. Look out fro Governor Wheeler from the NZD in the light of recent dovishness and from Australia the cash rate and the statement. Again the tone and language is important as the rate is not expected to be changed.
Tuesday; Spanis unemployment, UK construction PMI
In the antipodes, the dairy price I New Zealand and retail sales (inflation data) in Australia.
Wednesday:A big day to watch for: A speech from the RBA from the assistant governor. UK services PMI, another critical pice of the economic post-Brexit puzzle. This is a big part of th UK GDP.
Also, critical US ISM non-manufacturing PMI. Remember PMI’s are forecasters of times to come and affect speculation and outlooks. Us trade balance also today and factory orders as well as weekly crude inventories. Look out for advanced NFP data.
AUD and CAD, trade balance,
Thursday; ECB policy meeting accounts, US unemployment
Friday; UK manufacturing production, CAD job stats, from the USD the all-important average hourly wage and it’s the first week of the month again and that means NFP ! Stand clear of the exits!
Friday will include more Fed speak to digest and the Chinese Caixin services PMI
A week of big news is ahead as well as the fall-out from the DB crisis. There are many important consolidation patterns to watch with a view to a risk environment changing towards risk-off. The week’s favourites, are Gold at the bottom of it range:
Also on the policy differences
And the USDSGD if we see USD strength.
Also looking to short the AUDJPY,
and watching The USDJPY for a breakout.
This week we will leave the equities in the US alone, but the Dax and the Eurostoxx (Which has a better pattern) is on our watch list:
We will leave the USDCAD, there has been mixed data and we will be watching oil for future clues. On Euro weakness we will look at the EURGBP for a short but not yet…we will need a rejection and a pattern
German’s flagship bank is likely to survive this time , but it has clarified the dangers in the banking sector and certainly crystallized the events of 2008. It is fair to say that since that crisis the ability to weather financial storms is much improved but it is bound to send a shiver down the investor spine. Whether it will tip the sentiment into aversion behavior we do not know, but with Trump in the wings, the odds seem more in favour than against, at least for the next five weeks.
There are still additional concerns which of themselves are more than capable of instilling fear in the market, particularly the ongoing issue of central bank credibility, much discussed in this blog. The ECB and the BOJ may well have reached their self-imposed limits, or even globally agreed limits and are simply stringing us along as to what measures they are prepared to take in a crises. The hard truth here is that the market is all too aware that the ammunition is thinning, whatever we are hearing and whatever buoyancy is seen in the equity market.
The IMF will weigh in later this week in their annual meeting and we can anticipate the focus, Deutsche Bank, The Fed rate hike, Brexit and lack of global growth. It is unlikely to lighten the mood.
We have just walked through the door of the years last quarter and it’s a potential Molotov cocktail where politic and monetary policy are sharing a bed. It’s a relationship founded on empty promises.
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