The euro is trading at its lowest level against the Norwegian krone since August 2015.  The euro is near its best levels against the Swedish krona in nearly as long. 

The euro is trading at its lowest level against the Norwegian krone since August 2015.  The euro is near its best levels against the Swedish krona in nearly as long. 

Through the first three-quarters of the year, the US dollar has fallen against most of the major currencies.  There are two exceptions.  Sterling’s story is Brexit.  The Swedish krona is the only other major currency that has fallen against the dollar (~2%).  In contrast, the Norwegian krone is second strongest of the majors, gaining almost 10% against the dollar (trailing the yen’s 18.7% gain).

The key driver is the divergence of monetary policy.  Sweden’s Riksbank has been and continues to be more aggressive the Norway’s Norges Bank.  Sweden has negative interest rates (minus 50 bp) and a bond-buying program.   As recently as this week, Riksbank Governor Ingves has signaled his intention to ease further.  Governor Olsen of the Norges Bank is moving in the opposite direction.  The monetary bias has shifted from easing to a neutral setting.

Sweden’s challenge is not growth.  The economy expanded 0.5% in Q2 for a 3.4% year-over-year pace.   Its challenge is not inflation.  Underlying inflation (not a core measure but uses fixed mortgage interest rates) stood at 1.4% last month.  It finished last year near 0.9% and was 0.4% at the end of 2014.   What the Riksbank seems most concerned about is that risk that it loses competitiveness against the euro as the ECB continues to ease.  Sweden’s current account surplus was almost 5% of GDP last year and is expected to be near 5.5% this year. 

Its budget deficit is around 0.5% of GDP this year, half of last year’s deficit.  When the IMF and G20 speak about countries with fiscal space, Sweden is often not mentioned.  This probably due to the relatively small GDP of around $550 bln. 

Noway’s macro performance lags behind Sweden.  The economy was flat in Q2, but excluding the North Sea, the mainland economy expanded by 0.4%.  Headline CPI was 4.0% in August. The underlying rate, which adjusts for tax changes and excludes energy, rose 3.3%.  Norway’s external account is driven by its petrol status.  It stands near 6.5% of GDP.  It runs a substantial budget surplus (~5.5% of GDP), but much reduced in recent years. 

The divergence has driven the Nokkie-Stockie cross significantly higher.  It is at its highest level since mid-2015.  At the start of the year the Norway at near SEK0.95.  It is making new highs today above SEK1.07.  A weekly trendline, going back to 2012 comes in above SEK1.0930, though falls toward SEK1.0870 by the end of the year.  The divergence could carry Nokkie through the trendline.  We look for a move toward SEK1.10-SEK1.12. 

Divergence: Norway and Sweden is republished with permission from Marc to Market

The post Diverging Global Monetary Policies Plod On appeared first on Economy Watch.

True to its recent habit, the US dollar is finishing the week on a firm note.  On the month, though, the greenback has fallen against most of the majors, but sterling, the Canadian dollar, and the Swedish krona. 

True to its recent habit, the US dollar is finishing the week on a firm note.  On the month, though, the greenback has fallen against most of the majors, but sterling, the Canadian dollar, and the Swedish krona. 

Global equities are trading heavily, and investors’ angst is lending support to bond markets.  The concerns about the contagion effect emanating from Germany’s largest bank are taking a toll on sentiment.  Deutsche Bank stock fell to a new record low in the European morning but has turned higher in subsequent turnover.  Nevertheless, the financial sector is Europe is off twice what the loss of the overall market.  The Dow Jones Stoxx 600 is off 1%, while the financial sector is off more than 2%.  Italian banks share index is off 2.5% and is near two-month lows. 

The MSCI Asia-Pacific Index fell 1%, to record its largest loss in three weeks.  Japan’s Topix was off 1.5%, with financials off 2.2%.  Chinese stock markets managed to buck the trend to post minor gains, but even in Shanghai, banks shares ended lower.  Separately, China’s Caixin manufacturing PMI edged to 50.1 from 50.0.  The average in Q3 was 50.2.  That is the highest quarterly average since Q3 2014, and provides another piece of data suggesting that Chinese economy has stabilized, albeit at lower levels and with higher debt.  Chinese markets are closed the next week for national holidays, though official PMI data will be reported over the weekend.

Japan released a mixed bag of data.  Prices pressures continue to ease.  Household spending fell more than twice what was expected.  Industrial output was stronger than forecast, helped by a surge in auto output. Unemployment ticked up to 3.1% from 3.0%. 

Headline CPI remained negative (-0.5% vs. -0.4% year-over-year) in August, for the fifth consecutive month. Excluding fresh food, which is the BOJ preferred measure, fell -0.5% from a year ago.  The measure excluding food and energy slipped to 0.2% from 0.3%.  Tokyo reports its inflation figures with less of a lag, but the September data dive little hope of a recovery in the national price measures.   

The BOJ reported that its staff, excluding managers, would be given a 0.2% pay increase in the base wage.  This follows a 0.6% increase in the FY15, and although it is the third year that the base wage has increased, the small amount illustrates the similar pressure facing the private sector.  Weak wage increases are one of the factors holding back consumption.  Overall, household spending fell 4.6% in August from a year ago.  The Bloomberg median was for a 2.1% decline.  Household spending has been contracting on a year-over-year basis since February. 

Industrial output rose 1.5% in August, which is three-times what the median guesstimate projected.  The year-over-year pace rose to 4.6% from -4.2% in July.  Vehicle production rose 8.8% after a 4.1% slide in July.  Construction orders jumped 13.8% after a 10.9% fall in July.  Japan will report the Q3 Tankan survey early Monday in Tokyo.  Sentiment among the large manufacturers is expected to post a small increase, and capex plans are expected to improve from the 6.2% of Q2. 

Eurozone data was largely in line with expectations.  The unemployment rate was steady at 10.1% in August, while the preliminary September CPI rose to 0.4% from 0.2%.  This picks up the gains in energy, as the core rate was steady at 0.8%. 

The euro has been pushed to new lows for the week, just below $1.1170.  Last week’s low was seen near $1.1125.  Barring new news, the intraday technicals suggest that the downside may have largely been exhausted in the European morning.  The dollar has largely matched yesterday’s range against the yen.  The greenback found sellers at JPY101.80 was approached, while buyers appeared after a big figure pullback.

Better than expected UK data failed to lend much support to sterling.  Yesterday’s losses were extended, but the week’s low near $1.2920 remains intact.  The intraday technicals warn that the low for the day, though, may not be in place. 

Still, the UK could not have hoped for better data today.  The Q2 GDP estimate rose to 0.7% from 0.6%, unexpectedly, but somehow, in the machinations of GDP calculations, this turned into a 2.1% year-over-year pace, down from 2.2%.  The Q2 current account deficit was also smaller than anticipated, while investment was stronger than expected, rising 1.0% or twice the median forecast.  Most promising for Q3 was news that the index of services for July rose 0.4%.  This is the second best of the year thus far.  The median forecast was for a 0.1% increase.  The June series was also revised higher (0.3% from 0.2%). 

There is a slew of North American data today.  In the US, the personal consumption expenditures will be used to calculate Q3 GDP. After the improvement in the advance merchandise trade balance and inventory data, look for Q3 estimates to be raised again, with many, perhaps even the Atlanta Fed, returning toward 3% forecasts.  The core PCE deflator, the Fed’s preferred inflation measure is expected to tick up to 1.7%, which would represent new two-year highs.  The Chicago PMI may attract attention.  It is expected to improve from the 51.5 reading in August.  Lastly, the University of Michigan’s consumer confidence report and the inflation expectation will be reported. 

For its part, Canada reports July GDP.  It is expected to have risen by 0.3% after a 0.6% rise in June.  The monthly GDP readings in Q1 16 and Q2 16 have averaged zero.  Industrial and raw material prices are expected to have fallen in August.  The US dollar bottomed near CAD1.3050 yesterday and tested CAD1.32 in the European morning.  However, the greenback’s momentum appears to have stalled.  Similarly, the Australian dollar, which posted an outside down day yesterday, saw follow through selling today, but the enthusiasm waned below $0.7600 and near the 20-day moving average (~$0.7595).  There is scope toward $0.7630-$0.7640. 

In addition to the Chinese data, there are two other events this weekend to note.  The first is a formality.  The Chinese yuan will be included in the IMF’s SDR starting October 1.  The second is more substantive.  Hungary holds a referendum on the EU’s immigration policies.  It is likely to reject plans to relocate refugees, setting the stage for an escalation of the simmering confrontation with the EU.

Dollar Finishing Week on Firm Note is republished with permission from Marc to Market

The post That’s One Tough Dollar, but Oddly Down for September appeared first on Economy Watch.

Let’s admit that the monthly non-farm payroll report is among the most difficult for economists to forecast.  There are not many reliable inputs as it is the first piece of real sector data for a new month. 

Nevertheless, it is an important piece of economic data, and which, as we saw earlier in the year, a significant downside miss could freeze the Fed.  

Let’s admit that the monthly non-farm payroll report is among the most difficult for economists to forecast.  There are not many reliable inputs as it is the first piece of real sector data for a new month. 

Nevertheless, it is an important piece of economic data, and which, as we saw earlier in the year, a significant downside miss could freeze the Fed.  

There are four data points that suggest that a strong September jobs report, to be released on October 7. 

1.  Weekly initial jobless claims have fallen about 10k whether using a four-week moving average or comparing the survey weeks. 

2.  There were about 50k more people than average who missed work in August due to the weather.  The lion’s share will likely have returned. 

3.  The Conference Board’s measure of consumer confidence showed the gap between jobs plentiful and hard to get rose to 6.3 (from 4.0) and is the highest since August 2007. 

4.  Income tax withholding in September is running almost 6% on average higher than in August. 

Some other details of the jobs report may also be constructive.  The average weekly hour’s works are expected to rise by 6 minutes, which does not sound like a lot, but when there are 157 mln workers, it turns out to be 457k full-time equivalents.  Average hourly earnings are expected to rise 0.2% for a 2.6% year–over-year rate, which is the upper end of the where it has been since 2010. 

The under-employment rate has steadied around 9.7%.  It remains well above pre-crisis levels when it was closer to 8%.  There does appear to be a structural shift in the economy, not just in the US but globally.  Less educated and less skilled workers are at a clear disadvantage.  There are various reasons why this might be the case, including global competition and technology.

Consider that unemployment for those with a college degree in the US stands at 2.5%.  With a high school degree, but no college, the unemployment rate is more than double at 5.5%.  Those without a high school diploma, the unemployment rate are more than three-fold higher than for college-educated (7.7%). 

We read the recent FOMC statement and the dot plot to mean that the bar to a December rate hike is low.  The data does not have to improve much for the Fed to act.  Our back of the envelope calculation suggests the US economy created a little more than 200k jobs in September.  The jobs report we expect will be more than sufficient for the Fed to hike rates this year.   

That said, we think the odds of a November hike are next to nothing, even though Bloomberg calculation puts it at 17% today.  There is no precedent for a rate hike a week before a national election.  We think that the partisan claims that the Fed has not raised interest rates because of its politics are wide of the mark.  The arguments offered by Governors Brainard and Tarullo and Chicago Fed President Evans for even more caution than the Federal Reserve has shown are based purely on economic analysis.

Quick Look at Why the September Jobs Data will Likely Be Strong is republished with permission from Marc to Market

The post Remember September (for Jobs Data) appeared first on Economy Watch.

The US dollar has firmer against most major and emerging market currencies.  It remains well within its well-worn ranges, which continue to be narrow.  A notable exception today is the yen’s weakness. 

The US dollar has firmer against most major and emerging market currencies.  It remains well within its well-worn ranges, which continue to be narrow.  A notable exception today is the yen’s weakness. 

While the majors are mostly off marginally and now more than 0.3%, the yen is 0.75% lower.  That puts the greenback at a six-day high (~JPY101.75) at its best. Yesterday’s sharp rally in oil prices, the backing up of global yields, and rising equities encouraged yen selling, especially given that the dollar’s downside momentum had stalled in front of the psychologically important JPY100 level. 

In addition, the Japanese data were poor.  Retail sales fell twice as much as expected in August (-1.1%), which brought the year-over-year rate to -2.1% from -00.2% in July.  Poor weather and payback from the 1.4% monthly increase in July were important considerations.  Nevertheless, it warns of downside risks to tomorrow’s more comprehensive measure of consumption (overall household spending).  Japan also reports industrial output, employment, and CPI tomorrow. 

Separately, we note the MOF weekly portfolio flow report showed foreign investors sold a JPY2.8 trillion of Japanese bonds last week.  This appears to be a record amount.  It was the second consecutive week of sales.  We’ll be watching the time series closely in the coming weeks.  It is possible that it reflects quarter-end portfolio adjustments, but it reflects a change in assessment post-BOJ shift from targeting the monetary base to targeting the yield curve.

In Europe, both Spain and Germany are reporting preliminary September inflation data.  Both show deflationary forces ebbing.  In fact, Spain’s harmonized measure of CPI rose to 0.1% from minus 0.3%.  This is the first reading above zero in two years.  German states have reported an increased in the year-over-year rates, and this leaves the countrywide report, due shortly poised to rise to 0.5% from 0.3%.   The Eurozone aggregate flash reading will be released tomorrow and is expected to double to 0.4% from 0.2%.  That would match the year’s high, and it has not been higher since mid-2014.  The core rate is also expected to tick higher (0.9% from 0.8%). 

Price pressures remain modest but moving in the right direction.  The real sector data has been mostly stable, though today’s data suggests that both Germany and Spain may be slowing.   Spain reported August retail sales rose 3.4% year-over-year (seasonally adjusted) down from 5.1% and the second consecutive month of slowing.  Germany unexpectedly reported a 1k increase.  The median expectation was for a 5k decline.  It is the first increase since June 2014.  Recall last week; the German PMI also pointed to the loss of economic momentum, and the Bundesbank recently warned that the economy slowed in Q3. 

There are two other main talking points today.  First is the OPEC deal.  Most, like us, seem skeptical.  It is a bit like Woody Allen’s complaint about the poor restaurant, where the food wasn’t good, and the portions were small.  The supposed cut to 32.5-33.0 mln barrels is a drop in the bucket, so to speak, given that August output was estimated at 33.24 mln barrels.  In addition, how the “cuts” will be distributed will not be decided for two months, leaving current production unaffected by the decision.

Moreover, there is not an agreement on the output figures to use and shifting from one calculation to another, could account for the proposed cut in output.  In addition, Saudi Arabia, who is one of the few countries that burns oil for electricity, typically trims that summer output increase, which could also account for most of the anticipated fall in output. 

The other talking point is Germany’s largest bank.  Deutsche Bank shares are off (~0.7%) today after advancing 3.2% yesterday and 0.65% on Tuesday.  There is much talk about the need the bank to raise capital and the possibility of some role for the state.  However, the rules for state aid have changed since the 2008-2009 government support efforts.  The controlling document is the Bank Recovery and Resolution Directive (BRRD).   

The same set of rules limited what Italy could do for its banks.  There are, of course, nuances and exceptions, but in general, two principles stand out.  First, most use of taxpayers’ money (government aid) requires participation by shareholders and junior creditors.  Second, a government stake, which was speculated about yesterday is possible under certain conditions, but cannot be done on discriminatory terms that give the state an advantage of show preferential treatment for the bank. 

There are several US economic reports today.  For Q3 GDP purposes, the advance look at the August merchandise trade balance and wholesale inventories are the most important.  For the real time read on the labor market, ahead of next week’s national report, the weekly jobless claims will attract attention.  The four-week moving average slipped below 260k for the first time in nearly two months last week.  The US also provides a revision to Q2 GDP.  It is expected to rise to a still disappointing 1.3% annualized rate from 1.1%.   

No fewer than five Fed officials are on tap for today.  Harker has spoken already today from Dublin, leaving four for the North American session.  Yellen speaks after the markets close.  In terms of policy, yesterday, Yellen simply confirmed the dot plot saying that a majority of officials anticipate one hike this year. 

The euro remains quiet; well within the one-cent range see this week.  Sterling initially advanced to almost $1.3060 but has been unable to sustain even modest upticks and has returned to straddled $1.30.  The dollar’s upside momentum against the yen faded in the European morning.  Intraday support is seen in the JPY101.00-JPY101.20 range.  The dollar-bloc currencies are heavy.  The Australian dollar poked through $0.7700 but met a wall of offers.  It looks set to challenge yesterday’s low near $0.7745.  A close below yesterday’s low would suggest a near-term high is in place.  The US dollar extended yesterday’s losses against the Canadian dollar, falling to CAD1.3050.  It has recovered to CAD1.3100, where the better two-way action is seen.

Dollar Quietly Bid, while Market is Skeptical of OPEC Deal is republished with permission from Marc to Market

The post Thursday Headlines: OPEC, Deutsche Bank and Many Fed Speakers appeared first on Economy Watch.

Upward pressure on US consumer prices is stemming from two elements.  Rents and medical services.   Due to the differences in the composition of the basket of goods and services that are used, the core personal consumption deflator, which the Fed targets, typically lags behind core CPI. 

Upward pressure on US consumer prices is stemming from two elements.  Rents and medical services.   Due to the differences in the composition of the basket of goods and services that are used, the core personal consumption deflator, which the Fed targets, typically lags behind core CPI. 

At is time of year; the concern tends to be on health care costs and premiums.  Many US employees are given “open enrollment” when they can change their health care benefits.

This Great Graphic comes from Kaiser Family Foundation’s Employer Health Benefit Survey.  It shows three five-year periods.  The amber bar is the cumulative increase in for employer-provided health care premium.  The dark blue bar is the cumulative increase in inflation, while the lighter blue bar is the cumulative growth in employee earnings. 

What chart shows is that the increase in premiums has slowed, though it is still easily outpacing overall inflation and the increase in our earnings.  In 2001-2006, premiums rose a cumulative 63%.  The pace was halved in the next five year-period.  From 2011 through this year, premiums rose 20%.   Cumulative wage growth was 15%, 16% and most recently 11%.  The cumulative increase in prices was 14%, 12% and 6% for the three periods respectively. 

Premiums are set to rise again.  In New York State, the insurance providers have petitioned the government all a 17% increase in premiums. 

There is another dimension of the issue.  How should the rising premium be divided between employer and employee?  This is not an economic issue, but of politics and power.  The stronger force will seek to shift the burden to the weaker force. 

Consider 1999.  According to figures from Kaiser’s survey, the premium for all businesses to provide a family with health care benefits was $5790.  This was divided between the employee, who paid $1543 and the employer, who picked up the remaining $4247.  The employee paid 26.6% of the overall premium. 

Fast forward to this year.  Kaiser’s figures suggest it cost $18, 142 to provide health care insurance for a family.  The employee paid $5277 and the employer paid $12, 865.  The employee’s share increased to 29.0%.

This aggregate look, however, conceals, a big difference between small (3-199 employees) and large (200 or more employees) firms.  A small firm may actually experience a smaller overall premium than large firms ($17,546 vs $18,395).  Small business pass a greater share to its employees (37.6%) compared with large businesses (25.6%).

Great Graphic: Growth in Premiums of Employer-Sponsored Health Insurance is republished with permission from Marc to Market

The post Employer Insurance Premium Growth – Still a Problem appeared first on Economy Watch.

Italian Prime Minister has set the date for the constitutional referendum as late as practically possibly.  It will be held on December 4.  The issue is the perfect bicameralism that gives as much power to the Senate as the Chamber of Deputies. 

Italian Prime Minister has set the date for the constitutional referendum as late as practically possibly.  It will be held on December 4.  The issue is the perfect bicameralism that gives as much power to the Senate as the Chamber of Deputies. 

Renzi’s argument is that the political reform is necessary to make Italy governable.  Italy has had 63 governments since the end of WWII.  In order to address the economic challenges the country faces, political reform is necessary. 

The referendum took on extra significance because Renzi had suggested he would resign if the referendum were not approved.  This is significant because his resignation could see the center-left PD replaced by the second largest party in Italy, the 5-Star Movement, which wants drop out of the monetary union. 

Many observers continue to play up this scenario even though Renzi has backed off from this threat/pledge.  He admits that it was a mistake to link the government’s tenure to the referendum, and says he meant to underscore the importance of the political reform.  He has subsequently indicated he would not resign, and that parliamentary elections would take place as scheduled in 2018.  

Walking back the resignation talk is also tactically important.  It increases the chances that the referendum can be held on the merits of the reform rather than on Renzi himself, which the opposition parties seemed to be doing.  There is genuine opposition to the constitutional reform that is based on the concern that it would concentrate too much power in the hands of the prime minister.  There is an underlying fear of another Mussolini, and, arguably, a more immediate antipathy to another Berlusconi. 

All the main opposition parties in Italy are opposed to the referendum, as is the largest trade union.  Other trade unions and the industry association (Confindustria) favors the referendum.  The polls show that it remains a close contest with a large number of undecided voters. 

Setting the referendum late in the year may also increase the chances of success.  First, the 5-Star Movement, vocal in its opposition, may see its own position compromised by the difficulty in transitioning from an opposition party to a governing party.  In local elections earlier this year, it carried the municipal government of Rome and is having a rough time of things, with internal divisions and resignations. 

Second, it allows Renzi to focus on the 2017 budget that is due in a few weeks.  In recent weeks, he has taken on a more antagonistic stance to the EC in general, Merkel, and Hollande in particular.  Given the refugee crisis and the damage from the earthquakes, he is seeking greater fiscal flexibility that the EC may be prepared to grant.  Confronting the EU will cost Renzi no support while stealing some of the thunder of the opposition. 

Today the government will also update its economic forecasts.  Reports suggest the government will forecast 1% growth this year and 1.2% growth next year.  These are in line with the central bank’s forecasts (1.1% and 1.2% respectively); they are about Confindustria’s forecasts of 0.7% and 0.5% growth.  

Third, the later the referendum, the longer Renzi can personally campaign for the referendum.  He is more enthusiastic than the opposition.  Reportedly, he has committed to an extensive grass root campaign. 

The important takeaway that many observers have seemed to play down is that Renzi is no longer talking about resigning if the referendum loses.  This removes much of the disruptive potential of the referendum.  This is not to say that Italy does not have its challenges.  Growth remains poor, and the banking woes have not been convincingly addressed.

Renzi and the Italian Referendum: Disruption Potential Minimized is republished with permission from Marc to Market

The post It’s an Italian Thing appeared first on Economy Watch.

The US dollar is enjoying a firmer bias today, but it remains narrowly mixed on the week.  It is within well-worn ranges.  Of the several themes that investors are focused on, there have not significant fresh developments. 

The US dollar is enjoying a firmer bias today, but it remains narrowly mixed on the week.  It is within well-worn ranges.  Of the several themes that investors are focused on, there have not significant fresh developments. 

In terms of monetary policy, both Draghi and Yellen speak today.  The former is behind closed doors with a Germany parliamentary committee.  While Draghi’s prepared comments will likely be made available, this is a defensive venue.  No new policy insight can be expected.  Instead, Draghi can be counted on to offer a robust explanation for the easy monetary policy, which has had the support of the vast majority of the ECB. 

He may also reiterate that countries, such as Germany, who have fiscal space, ought to use it.  He may also note that part of the reason interest rates is low in Germany is that the country, in defiance of the EC, has excess savings relative to investment (i.e. large and sustained current account surplus).   In addition, interest rates are low because monetary policy is being asked to do more than it should.  Governments, including Germany, have been slow to enact structural reform. 

For her part, Yellen is also unlikely to be breaking new ground in testimony before the House Panel on Bank Supervision.  This is not the forum in which monetary policy is the focus.  At least four regional presidents will be speaking through the day, though only two, Bullard and Evans speak during the market sessions.  They are speaking on community banking.  Later, after the markets close, two dissenters Mester and George speak. 

Earlier, Shafik, a Deputy Governor of the Bank of England spoke.  She suggested that even though the economy has performed a bit better than expected, further easing may still be needed.  This is not new news as the MPC had already indicated that this was likely. 

Another development that investors have been tracking is the pressure on Germany’s largest bank.  Shares are Deutsche Bank recovered yesterday and are building on those gains today.  News that it agreed to sell its Abbey Life unit to a UK company was also seen as supportive.

One of the challenges that the bank is facing is that Chinese authorities may make it difficult for it to repatriate the full amount of the $3.9 bln sales in a local lender.  Ironically, as the yuan is about to formally join the leading currencies in the IMF’s SDR, Chinese restrictions on capital outflows may pinch.  Reports suggest that the bank may be asked to repatriate the funds from the sale in several batches (over time) rather than in one go, for example. 

Investors have been monitoring developments within OPEC and today’s meeting in Algiers.  An agreement is not likely today.  However, what many seem to be focusing on, however, is the prospects for an agreement before the end of the year.  One of the key hurdles has been Iran’s efforts to return its output to levels seen before the embargo.

Saudi Arabia is reluctant to surrender market share to it.  Oil prices are consolidating at the lower end of yesterday’s range.  During the first half of this week, the price of the Nov light sweet futures contract seems comfortable $44 and $46 a barrel.

The US reports August durable goods orders today.  After a 4.4% rise in July in headline orders and a 1.5% gain excluding defense and aircraft orders, a modest pullback is expected.  One bright spot could be the shipment of those goods, which are expected to hold up better, and maybe even eke out a small gain.    

Yesterday’s Conference Board’s measure of consumer confidence contained a nugget that points to a good jobs report next week.  It shows that the gap between “jobs plentiful” and “jobs hard to get” is 6.3, the most favorable reading since August 2007.  The early call is a 175k increase in September non-farm payrolls after 151k in August.  Our bias is closer to 200k.   However, we recognize that language of the FOMC statement suggests that the bar of continued improvement in the labor market is low, and the 175k more than meets it.

The euro’s marginal extension of yesterday’s losses met to the tick the 61.8% retracement objective of the bounce since September 21 low just below $1.1125.  That retracement level was $1.1183, and the euro bounced off it.  The nearby cap is seen in the $1.1240-$1.1250 area.  The greenback continues to trading in narrow ranges above JPY100.  The five-day high is near JPY101.25, and only a move above there (or below JPY100) is notable. 

Sterling poked back above $1.30 yesterday but is struggling to find much traction.  It is straddling that level today.  It is showing little enthusiasm in either direction.  Lastly, we note that the dollar-bloc currencies are under a little pressure.  The Australian dollar remains the most resilient, but it is vulnerable to a bout of profit-taking on the 2.5 cent run-up since mid-month as the $0.7700 is approached.  Over the past six weeks, it has flirted with this level, but only managed to close above it once.

Dollar Mostly Firmer, but Going Nowhere Quickly is republished with permission from Marc to Market

The post Without Monetary Policy Insight, Dollar Runs in Place appeared first on Economy Watch.

The first US Presidential debate may not sway many voters but has lifted the Mexican peso.  The peso, which has fallen by about 1.3% over the past two sessions, has stormed by 1.5% today as the seemingly biggest winner of the debate. Snap polls immediately following the debate gave the edge to Clinton. 

The first US Presidential debate may not sway many voters but has lifted the Mexican peso.  The peso, which has fallen by about 1.3% over the past two sessions, has stormed by 1.5% today as the seemingly biggest winner of the debate. Snap polls immediately following the debate gave the edge to Clinton. 

Speculators had amassed a near record gross short peso position in the futures market.  It had more than doubled over the past three weeks to 109.9k futures contracts as the polls indicated the contest had tightened markedly since the end of August.  The bears had added 24k contracts alone in the five-day reporting period ending September 20. 

We have argued that the bearish case for Mexico for real investors extended well beyond US presidential politics, and note that the peso has been trending lower against the dollar since early Q2.  The market had gotten frothy as the speculative positions showed.  The dollar approached a key psychological MXN20.00 level.  The central bank meets this week, and the market leans toward a 50 bp rate hike.  The dollar fell to a low a little below MXN19.44 in thin early European dealings before rebounding. 

Asian shares began lower, but also rebounded as the debate progressed.  After initially falling almost 1%, the MSCI Asian-Pacific Index recovered to finish 0.7% higher.  Although it did manage to push through Monday’s highs, the close near it and on the session high, underscoring the strong intrasession recovers.  

European shares, however, have been unable to follow suit.  After opening higher, shares have reversed lower, with energy and financials leading the way.  Germany’s largest banks remain under pressure and are extending yesterday’s losses.  Italy’s bank share index is also pressure for the third running.  The widely publicized bank woes in Germany are not having a significantly negative impact on the euro, which has remained in about a quarter cent range in the European morning.  One possible explanation is that to address the challenges will likely require the sales of foreign assets and this repatriation is supports the currency.  Capital inflows and a current account surplus may help explain the euro’s resilience.

Press reports note that since the early 1990s, US stocks rally about 0.85% following the first debate.  It may be difficult to match that average today.  The S&P 500 gapped lower yesterday after gapping higher last Thursday after the Fed decision.  The two-day island top has bearish technical developments.  Yesterday’s gap is also important because it appears on the weekly bar charts as well as the daily.  That gap is important for the near-term outlook.  It is found between 2158.5 and almost 2164.

Bonds are firm; with benchmark 10-year yields mostly 1-3 bp lower.  The 10-year JGB yield slipped a single basis point, which puts the yield at minus 8.5 bp, the low for the month.  The US 10-year yield had risen to 1.75% toward the middle of September is now 1.57%, the low since September 8.  It has averaged 1.63% this month.  Separately, note that the UK’s corporate bond purchase program is launched today.

The news stream remains light.  The main data was ECB money supply and credit figures for August.  Money supply growth matched the cyclical high of 5.1%.  Credit growth was mixed.  Lending to households edged higher to 2.0% from 1.9%, a three-month high.  Lending to non-financial businesses slipped to 1.1% (from 1.3%), the lowest past since April.  Lending is expected to be supported by the increased take down of TLTRO II.  The ECB reported at the end of last week that the banks took 45.3 bln euros in the second offering, up from 32 bln in the first. 

Tomorrow’s calendar is more active, with both Draghi and Yellen scheduled to speak and OPEC meets.  Today’s North American session features Case-Shiller house prices, and Markit’s preliminary service and composite PMI.  The Conference Board’s measure consumer confidence and the Richmond Fed manufacturing index rounds out the calendar.  The Vie Chairman of the Federal Reserve Fischer speaks before midday (ET).  His topic is why study economics, and hence may not shed much light on the recent debate over US monetary policy.

US Debate Lifts Peso, but Leaves the Dollar Non-Plussed is republished with permission from Marc to Market

The post The Peso, but Probably not Voters, Moved by the Debate appeared first on Economy Watch.

EM initially benefitted from the FOMC decision, but softened into the weekend.  One culprit was lower oil prices, as reports suggest an output deal is unlikely at the OPEC meeting this week in Algeria.  However, it wasn’t just EM, as the greenback closed firmer against the majors as well.  We still believe that risk and EM should do fine over the next few weeks, as the Fed set a two-month window of steady rates.

EM initially benefitted from the FOMC decision, but softened into the weekend.  One culprit was lower oil prices, as reports suggest an output deal is unlikely at the OPEC meeting this week in Algeria.  However, it wasn’t just EM, as the greenback closed firmer against the majors as well.  We still believe that risk and EM should do fine over the next few weeks, as the Fed set a two-month window of steady rates.

Looking at individual country risk, a cabinet shuffle in Poland is a good reminder about political risk.  Israeli, Czech, and Colombian central banks are all expected to stand pat.  China provides its first snapshot of its manufacturing sector this week with PMI readings, while Korea will give the first reading for trade next weekend.  Moody’s downgrade of Turkey to Ba1 is a reminder that country-specific risk remains in play.

Singapore reports August IP Monday, which is expected to rise 0.5% y/y vs. -3.6% in July.  August CPI came in at -0.3% y/y vs. -0.4% expected.  This is the lowest rate of deflation since June 2015, and could move into positive territory by year-end.  Trade and retail sales data came in stronger than expected last week.  It’s a tough call for the MAS meeting next month.  No move is likely then in light of improved data, but we see a very small chance of a dovish surprise.

Bank of Israel meets Monday and is expected to keep rates steady at 0.10%.  Deflation is persistent, but the central bank does not seem compelled to move into unconventional measures given current conditions.  The economy remains fairly robust, with GDP growing 4% annualized in Q2.

Mexico reports July GDP proxy Monday, which is expected to rise 2.05% y/y vs. 2.22% in June.  It reports August trade Tuesday.  Banco de Mexico meets Thursday and is expected to keep rates steady at 4.25%.  Let’s see how the peso (and EM) trades ahead of the meeting, but we think a hawkish surprise is likely.  Still, we’re in favor of a smaller hike (25 bp) rather than a bigger one (50 bp).

Brazil reports August current account (-$776 mln expected) and FDI data Monday.  The central bank releases its quarterly inflation report Tuesday.  This will be very important, as many are still looking to October 19 for the start of the easing cycle.  Brazil also reports August PPI Tuesday.  August Central government budget data and September IGP-M wholesale inflation Thursday.  August consolidated budget data will be reported Friday.

Taiwan reports August IP Tuesday, which is expected to rise 4.5% y/y vs. -0.3% in July.  August export orders were reported last week much stronger than expected, up 8.3% y/y vs. 0.5% expected.  This is the first positive reading since March 2015 and the strongest since October 2014.  Still, the economy is by no means robust.  The central bank then meets Thursday and is expected to cut rates 12.5 bp to 1.25%.

South Africa reports August money and loan data and PPI Thursday.  It then reports August trade and budget data Friday.  The SARB signaled that the tightening cycle is likely over, but we do not see any easing until we are well into 2017.  Next policy meeting (and last for this year) is November 24, and the policy rate is likely to remain steady at 7.0%.

Czech central bank meets Thursday and is expected to keep policy steady.  July data came in soft, and so it will be important to see if activity rebounds in August and September.  For now, we see steady policy.  If data remain weak, the first step for the central bank would likely be to extend forward guidance again.

Colombian central bank meets Friday and is expected to keep rates steady at 7.75%.  Inflation appears to have peaked, while the peso has stabilized.  The tightening cycle has likely ended, but we do not see easing until 2017. 

Korea reports August IP Friday, which is expected to rise 2.0% y/y vs. 1.6% in July.  Korea provides the first snapshot of global trade for September on Saturday.  Exports are expected at -4.3% y/y, while imports are expected at -2.8% y/y.  Korea should benefit from the stabilizing Chinese economy, but we think Bank of Korea will maintain a dovish stance for now.

China Caixin September manufacturing PMI will be reported Friday, which is expected at 50.1 vs. 50.0 in August.  Official September manufacturing PMI reading will be reported Saturday, which is expected at 50.5 vs. 50.4 in August.  The economy stabilized in August, and so the September readings will be important to show this continuing. 

Turkey reports August trade Friday.  The deficit is expected at -$4.7 bln vs. -$4.8 bln in July.  If so, the 12-month total would fall slightly to -$55.5 bln and the lowest since July 2010.  The external accounts have improved from low oil prices and sluggish domestic demand, but the gaps are likely to increase in 2017.  We agree with Moody’s downgrade to Ba1, but disagree with the stable outlook since our own model rates Turkey at BB/Ba2/BB.

Poland reports September CPI Friday.  More importantly, the government is expected to announce a cabinet shuffle sometime this week.  Reports suggest Finance Minister Szalamacha may be on the way out.  Recently, Treasury Minister Jackiewicz was fired due to apparent cronyism in his appointments at state-owned companies.

Emerging Markets: Week Ahead Preview is republished with permission from Marc to Market

The post What’s Up in Emerging Markets appeared first on Economy Watch.

The US dollar is narrowly mixed.  The euro, yen and Swiss franc are higher, while the dollar-bloc and sterling are softer.  The moving element here is not so much the greenback, which serving more as a fulcrum, but idiosyncratic, country-level developments. 

The US dollar is narrowly mixed.  The euro, yen and Swiss franc are higher, while the dollar-bloc and sterling are softer.  The moving element here is not so much the greenback, which serving more as a fulcrum, but idiosyncratic, country-level developments. 

The yen is the strongest of the majors. The dollar was turned back from above JPY101 and is now through the pre-weekend low near JPY100.70, is being driven be equity market losses and a belief that the shift in the BOJ’s framework from targeting the monetary base to the yield curve will do nothing to stem the yen’s year-long appreciation.  The effort to steepen the yield curve may help solve one issue, the squeeze on banks and insurers, but exacerbates another, namely the recycling of Japan’s current account surplus and foreign investment inflows. 

Germany’s IFO surprised on the upside after last week’s flash PMI fell to 16-month lows.  The business climate reading jumped to 109.5 from 106.3.  This is the highest reading since May 2014.  The current assessment rose to 114.7 from 112.9, and the expectations component rose to 104.5 from 100.1.  The market had expected mostly flat readings.   

Germany’s largest bank remains under pressure.  A press report in Germany indicated that Merkel has ruled out state assistance and will not assert itself large fine sought by US regulators.  German financials are the weakest sector today, losing 2.8%, while the overall market is down half as much. 

Spain may have taken a modest step toward resolving its nine-month political deadlock.  The success of the PP in Galicia, where it secured a majority, and the success of the Basque Nationalists Party, may sap the ability and/or willingness of the Socialists to continue blocking a minority government led by Rajoy in Madrid.  They will have until the end of October or face the third set of national elections in a year. 

Like last Friday, the euro has been confined to last Thursday’s trade range.  The high that day was almost $1.1260, which was just above the retracement objective near $1.1250.  The range is about than a quarter of a cent today. 

Sterling has been unable to resurface of $1.30.  This is a continuation of the heavy tone seen since the middle of the month.   There has been increased speculation that Article 50 will be triggered, but there has been no clear indication from 10 Downing Street.  Some are linking sterling’s weakness to quarter-end position and hedging adjustments.  The pre-weekend low was set near $1.2915.  It has barely held today.  The mid-August low, which would be the next obvious target, is found near $1.2865. 

The dollar-bloc currencies are slightly lower but have managed to shrug off some poor news.  New Zealand reported an August trade deficit three-times greater than the July shortfall and half again as large as expected.  Exports fell, and imports rose.  The Australian dollar is holding above $0.7600 as last week’s suggestion by the central bank’s Lowe of the possibility of lower rates is shrugged off.  The Canadian dollar is the heaviest. It is extending the pre-weekend losses that were spurred by disappointing retail sales and inflation data.  The immediate objective is the month’s high for the US dollar near CAD1.3250. 

The remainder of today’s session features speeches by Draghi and Nowotny of the ECB and Tarullo and Kaplan of the Federal Reserve.  Bank of Canada’s Poloz will also speak late in the session.  The US reports new homes sales for August, which are expected to pare back the outsides 12.4% gain seen in July.   

The first US presidential debate will be held in the North American evening that will correspond to the start of the Asian session on Tuesday.  The Real Clear Politics average of polls has Clinton at 46.5% and Trump at 43.7%.  A week ago, the poll average was virtually even at 44.9% to 44.0% for Clinton.  Of the last 183 polls through Sunday, Clinton was ahead in 155 and Trump in 21, with seven ties.  Of the 100 polls, Clinton was ahead in 85, and Trump led in 11.  There were four ties.

Dollar Mixed while Stocks Slide to Begin Last Week of Q3 is republished with permission from Marc to Market

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