EUR 9.38 For Business Accounts Only

The Morning Track forecasting-fears

- The Morning Track – Forecasting Fears by Bob Savage
http://track.com/articles/the-morning-track-forecasting-fears/

Pity the FOMC. This is the event of the day and likely the rest of the month with everyone geared up for a non-event. Most of the analysis I have read confirms that even if they hike rates and raise forecasts for more hikes, equities in the US will rally. This mood about the bull run up in risk assets wants nothing to do with facts or forecasts. The urge to print DJ20K – the logo on the hats for the Dow Jones Industrial Average breaking 20,000 today – is intense. But the world has 2017 in mind more than anything slightly new today. New and improved dots from the Fed won’t matter until they do. The risk is for the dots and other forecasts from overnight to return to haunt risk takers. If the FOMC just leaves its forecasts for 2 hikes and the long-term views unchanged that will be different – the first time since the dots were moved higher since 2014. The market has been expecting a dovish Fed willing to let the economy to run “hot.” The fears will be abo
ut them changing their mind. Overnight other forecasts and data mattered –
• Japan Tankan was as expected but the outlook for March is less – blamed on expectations for JPY weakness reversing and Trump policies
• The BOJ blinked into tomorrow’s 20Y auction of JGBs and bought more long-dated bonds – signaling fear that rates have moved too far too fast.
• China November Total Social Finance rose to 1.74trn – nearly double October and far more than Y1trn expected – credit is buying growth
• UK jobs data was mixed with wages in line, but employment fell in 3M to October – first time since June 2015.
• Eurozone industrial production misses forecasts for a gain – off 0.1% m/m after -0.9% m/m in September – 4Q isn’t going well.
So the real key for the day is about expectations and forecasts for inflation. The ability for the host of central banks this week to ignore fear and forecast stability rests on the anchoring of inflation expectations. The rapid rise in the 5Y/5Y forward inflation in Europe and the US should be giving some doubts to the doves and make the decisions ahead that much more difficult, of course there is plenty of room for them to rise along with wages.

The FX markets remain on the front lines of policy for many central bankers and this will be the focus after the FOMC with BOE, BOK and many others deciding policy tomorrow. The risk and reward for trading economic data (like the US retail sales, IP, PPI) pales in front of the political fears about Trump and trade policy or the FOMC. The lessons for FX today are in the EUR where the Greek impasse maybe larger and more problematic than anyone wants to admit driving 1.0550 tests later.