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http://track.com/articles/the-morning-track-transformations/
Transformations happen more easily in summer when the ugly caterpillar becomes the beautiful butterfly. So the transformations in central bank thinking about deflation risks look to be the same for yet another summer day. Reversing from emergency level rates remains the central focus for investors globally – whether its today’s BOE or the ECB in September. The problem is that markets jump from the caterpillar to the butterfly ignoring the chrysalis stage – and that wait is what Draghi and others want more than even a nice day at the beach. The BOE votes 6-2 to keep policy unchanged – as expected - at 0.25% - but the minutes state that tightening was required to bring inflation back to 2% and that if activity followed
a path consistent with its August projections then policy could be tightened "by a somewhat greater extent over the forecast period than the path implied by the yield curve underlying the August projections." The BOE August inflation report was similar to May with CPI expected to rise faster than previously thought in 2H 2017 and then fall back in line with 2.6% in 3Q 2018 and 2.2% in 3Q 2019. The other change was GDP expected at 0.3% in 3Q 2017 and 0.1% lower at 1.6% from 1.7% in 2018. For the market – much of this was expected - and the reversal of GBP from 11 month highs driven by a good Service PMI was quick – with 1.3260 replaced by 1.3150 on the news - particularly of weaker GDP outlooks rather than the warnings of higher rates in the future. The Czech central bank has set the example for today flapping its butterfly wings. First the CNB exited from the FX floor in April, then today, it hiked 20bps to 0.25% - first hike since November 2012. All of the above sug
gests that the move for normalization in rates whether it’s the BOE or ECB or the ongoing actions from the BOC and CNB are going to eat away at the USD still. So while GBP maybe the winner of volatility next to the HKD today – its trading at 19-month lows and maybe in need of a rate hike to help - it’s the USD trend that remains to most the key focus with the jobs data the next hurdle. Transforming from a USD bull to a bear for many will be the key this summer and that process appears to be in the Chrysalis stage.
The Morning Track transformations
- The Morning Track – Transformations by Bob Savagehttp://track.com/articles/the-morning-track-transformations/
Transformations happen more easily in summer when the ugly caterpillar becomes the beautiful butterfly. So the transformations in central bank thinking about deflation risks look to be the same for yet another summer day. Reversing from emergency level rates remains the central focus for investors globally – whether its today’s BOE or the ECB in September. The problem is that markets jump from the caterpillar to the butterfly ignoring the chrysalis stage – and that wait is what Draghi and others want more than even a nice day at the beach. The BOE votes 6-2 to keep policy unchanged – as expected - at 0.25% - but the minutes state that tightening was required to bring inflation back to 2% and that if activity followed
a path consistent with its August projections then policy could be tightened "by a somewhat greater extent over the forecast period than the path implied by the yield curve underlying the August projections." The BOE August inflation report was similar to May with CPI expected to rise faster than previously thought in 2H 2017 and then fall back in line with 2.6% in 3Q 2018 and 2.2% in 3Q 2019. The other change was GDP expected at 0.3% in 3Q 2017 and 0.1% lower at 1.6% from 1.7% in 2018. For the market – much of this was expected - and the reversal of GBP from 11 month highs driven by a good Service PMI was quick – with 1.3260 replaced by 1.3150 on the news - particularly of weaker GDP outlooks rather than the warnings of higher rates in the future. The Czech central bank has set the example for today flapping its butterfly wings. First the CNB exited from the FX floor in April, then today, it hiked 20bps to 0.25% - first hike since November 2012. All of the above sug
gests that the move for normalization in rates whether it’s the BOE or ECB or the ongoing actions from the BOC and CNB are going to eat away at the USD still. So while GBP maybe the winner of volatility next to the HKD today – its trading at 19-month lows and maybe in need of a rate hike to help - it’s the USD trend that remains to most the key focus with the jobs data the next hurdle. Transforming from a USD bull to a bear for many will be the key this summer and that process appears to be in the Chrysalis stage.
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Robert Savage
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