SUPER US CPI data announced yesterday (remember we spoke of this in yesterday’s comment). 0.10% was expected and +0.2% was published. USD liked the number which saw EURUSD rally below 1.14 handle. Initially GBPUSD fell to 1.52 but once calm was restored the GBP recovered back to where we started (just shy of 1.55). I know you must be thinking what are my views on the USD from here..If i am completely forthcoming I think the remainder of 2015 will see the USD remain in the current range and trend weaker. Even if we see a surprise in NFP I think the bigger picture for now is China and unless there is a proper turnaround there the FED will in all likelihood delay hiking until Q1 2016. Having said this FED futures responded to the increase in CPI by increasing the “odds” of a December rate hike to 30% (+3% on the previous count). There is the small matter of a FOMC meeting in 2 weeks time (28th) though we expect no change then. So it is all to play for in December, but really a 0.25% hike is neither here nor there in the big picture so I expect the FED to wait rather and hope for an improvement in overall sentiment both home and abroad.
For this morning the big data is EU CPI –> last print was -0.10% and the market is expecting a repeat of last month -0.10%. Again any diversion from this will see an initial knee jerk reaction either up or down. In my opinion given what we have seen recently the chances are the market will be right and CPI will remain negative (deflation) just like we saw this past week in the UK. Falling food and energy prices are keeping CPI in check. I think it will only be once China starts showing signs of higher growth and demand that a change in CPI will start to be registered.
Monday sees China publish their GDP numbers for Q3 (3am).
|03:00||CNY||Chinese GDP (QoQ) (Q3)||1.7%||1.7%|
|03:00||CNY||Chinese GDP (YoY) (Q3)||6.8%||7.0%|
You can see last print was 7% while the market was now expecting +6.8%….a reprint of anything over 6.8% will be seen and VERY POSITIVE and that is likely to see the USD rally and stocks fall as the FED futures will see another increase from 30% currently. This is a BIG BIG number because Q3 includes the recent multiple rate cuts AND currency devaluation. So the PBoC will be biting their nails to see if those changes had a GOOD or NEUTRAL effect on the economy.
FED member Dudley stated: “If the economy performs in line with my forecast, I would favour lifting off later this year. But it’s a forecast. It’s not a commitment,” Dudley said. He added “sometimes the forecasts are right, and sometimes the forecasts are wrong.” “The recent economic news suggests the economy is slowing, and we have these developments in China and emerging-market economies that could develop in a way” that could come back and hurt the U.S. economy and inflation, Dudley said. “When I put it all together, I still see an economy that’s growing a bit above trend. And if that is the case, we should see greater pressure over time on resources. And if that is the case, then we should be able to begin to normalize monetary policy.” FED member Mester said that the U.S. economy “can handle” an increase in interest rates despite the risks around the outlook. “It is appropriate for monetary policy to take a step back from the emergency measure of zero interest rates”. Mester said interest rates should move up gradually.
Have a great weekend and (GOOOOOO BOKKKE)
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