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The drip-feed of high frequency economic data from the major economies slows in the week ahead. The data that is reported is unlikely to have much impact on the expectations of policy going forward.
The state of play is fairly straightforward. The Federal Reserve is finding it difficult to take the next step in the normalization of monetary policy. According to Bloomberg calculations, the Fed funds futures strip does not show greater than a 42% chance of a rate hike at any meeting through the end of next year.
For a period that included a BOJ and FOMC meeting and the US GDP, speculators in the currency futures were unusually quiet. Summer holidays with family may be more important.
The robust US employment report before the weekend allowed the dollar to recoup the losses it experienced earlier in the week against most of the major currencies. The Australian dollar and Japanese yen managed to hold onto minor gains for the week.
The US Dollar Index stalled in front of a band of resistance (96.45-96.55), which houses the 61.8% retracement of the decline from July 27 (97.55) and the 20-day moving average.
In the EM equity space as measured by MSCI, Indonesia (+4.2%), Poland (+3.9%), and Brazil (+1.9%) have outperformed this week, while Czech Republic (-5.4%), Singapore (-1.5%), and UAE (-1.3%) have underperformed. To put this in better context, MSCI EM rose 1.2% this week while MSCI DM fell -0.4%.
The market's angst over the underlying trend in the US labor market eases with the help of the second consecutive robust report. The 255k rise in non-farm payrolls was well above expectations, and the details were mostly favorable. There were upward revisions to the May and June reports.
Sterling has slumped two cents in the wake of the Bank of England's announcement. It cut the base rate 25 bp and announced a resumption of its asset purchase program. It will buy GBP60 bln of Gilts and added corporate bonds to its purchase plan, which will be completed over the next six months. Corporate bonds will initially account for up to GBP10 bln asset purchase.
The focus is squarely on the US employment data today, ahead of which the capital markets are mostly consolidating yesterday's Bank of England inspired moved. The Australian and New Zealand dollars, alongside sterling, which is up about half a cent after losing two yesterday.
The Bank of England owns today, though tomorrow will be about the US jobs report. The BOE disappointed the market last month by not immediately responding to the UK referendum. It had laid out a somber economic and financial scenario as a risk case if the UK chose to leave the EU. At the time, and even after the referendum, some accused Carney of being too partisan.
Americans have a saying about an 800-pound gorilla in a room. It refers to a person or organization so powerful that it can act unilaterally. The British have an expression about an elephant in a room. It refers to a "fact" or problem that is not being addressed.
The US dollar is consolidating yesterday's losses. The greenback's upticks have thus far been shallow and unimpressive, except perhaps against the New Zealand dollar, which is off 0.8% ahead of next week's RBNZ meeting. Softer than expected labor cost increase reinforces the conviction that a 25 bp rate cut will be delivered next week.
This Great Graphic is deceptively simple. It is chart from the Bureau of Economic Analysis based on the price indices from components of personal consumption expenditure.
The rust line is service prices. They are steadily increasing. No deflation or disinflation here. Think about rent, medical services, education, and entertainment.
The Japanese government is delivering the other half of its fiscal policy today. Earlier, Abe decided to postpone the sales tax hike for the second time. Today, the cabinet approved a JPY28 trillion (5.6%) of GDP package.