EUR 8.90 For Business Accounts Only

The Morning Track pricing-power

- The Morning Track – Pricing Power by Bob Savage
http://track.com/articles/the-morning-track-pricing-power/

The US dollar rally stalls and some are seeing dead-cat’s bouncing. However, today is about inflation in the UK and Sweden – the GBP has gained to the best levels in a year at 1.3282 vs. USD and breaks below 0.90 vs. EUR as CPIH rises to December 2011 highs. Sweden also saw higher CPIF 2.3% y/y and EUR/SEK is off to 3.5290 – the biggest drop in a month. The USD gains from yesterday wobble thanks to these moves as we now wait for Thursday CPI from the US. The larger question to ask for investors and traders is whether we are seeing a shift from concerns about politics and growth to fears about inflation and weaker FX. The moves today suggest we are at that turning point where pricing power is everything. The bond market move yesterday is continuing today and that perhaps is the key as some central bankers remain in control of the markets and others less so. This FX control story is clearly in play for Turkey and China – as TRY is off 0.9% to 3.4370 after rates fel
l sharply (now off 1.15% to 6.45%). China PBOC fixed the CNY lower for the first time in 11 days – pointing the way for CNY/CNH weakness to catch up to EUR and JPY. Of course, that doesn’t mean that politics don’t matter – and how Congress and Trump deal with the Irma aid package will be important in the week ahead along with how the elections play out – with Norway a case in point as the right-wing coalition makes history as PM Solberg snatched victory from the jaws of defeat with 9 seat margin. New Zealand is watching and polls there are pointing to a National Party bounce back lifting the NZD. For the EUR, French President Macron is watching the first big strikes against his labor reforms. For the GBP bulls there is some caution still even as PM May gets over the first hurdle with Commons passing the “Brexit” bill as 12 Conservatives threaten to leave without amendments. The US focus on inflation maybe through commodities – with the WASDE at noon and t
he OPEC monthly reminding many about real assets. This is clearly the argument highlighted by the WSJ today with China PPI and CPI both higher in August as reported over the weekend. The driving force for good inflation should be wage demand if you believe your central bankers while the bad inflation is all about food, energy and pass-through from companies as they struggle to make margins. This will be an important day to watch to see if the USD reversal that started yesterday can hold and prove that it’s a net positive for other assets – like stocks and bonds. Watching 2.18% in 10Y and 92.10 in US dollar index to see.