“Housing starts, Philly fed and jobless claims aren’t setting my pulse racing,” SocGen’s Kit Juckes wrote on Thursday morning, referencing today’s US econ prints.
Indeed, it doesn’t seem like much is “setting” anyone’s “pulse racing” this morning despite the fact that between “phenomenal”, bigly, unbelievable, tremendous, completely amorphous, tax plans, a hawkish Yellen who is suddenly damned determined not to fall behind the curve (both figuratively and literally), and Wednesday’s blockbuster CPI print, we should by all rights be off to the proverbial races on the reflation narrative.
But we’re not.
As Bloomberg wrote a few minutes ago, “dollar bulls couldn’t have wished for better signals this week: Chair Janet Yellen reiterated the Federal Reserve’s aim to hike sooner rather than later, after concerns mounted among investors that policy makers could hold back after President Donald Trump focused more on protectionism rather than fiscal expansion. Consumer-price index data, although admittedly not the Fed’s preferred inflation gauge, made a case for further longs, while retail sales also beat forecasts.”
So what gives? Well, probably not a lot. It could just be everyone is taking a breather. But, in a testament to Nassim Taleb’s “narrative fallacy” argument, we have an overwhelming tendency to ascribe “causes” where there are none. And so, we get sh*t like this:
- USD Drops; Lack of Policy Details Overshadows Data
- the dollar’s inability to sustain its gains and overcome technical resistances seems to be a sign that hard details over Trump’s fiscal-expansion plans are needed before the greenback stages a fresh, sustainable rally that will erase its 2017 drop
- Kathy Lien, managing director of foreign exchange strategy at BK Asset Management, said the loss of momentum in the dollar likely came from an “unexpected decline in industrial production” and Yellen’s remarks on the economy.
This is probably more accurate: “yen gains Thursday are mostly down to positioning re- balancing and noise.”
Right. Some rebalancing. And some “noise.” But mostly noise.
One thing that is worth noting is that when it comes to the reflation trinity (rates, the dollar, and stocks), we’re seeing stocks decoupling a bit. I know that sounds counterintuitive (that is, stocks are making new highs and yields and the dollar have been strong, so really they seem to be moving together), but if you look at what stocks did when Yellen’s prepared remarks first hit the wires on Tuesday morning and then look how futs reacted right after the CPI data hit, it seems to me like the market may be trying to telegraph that equities aren’t ready to cushion the blow to bonds from a policy shock.
— Heisenberg Report (@heisenbergrpt) February 15, 2017
So you know, just something to keep in mind.
Moving on, Asian markets were mixed. The firmer yen weighed on the Nikkei of course, and Toshiba continued to spiral ever lower. It’s worth noting that Japan sold 399.6 billion yen ($3.5 billion) of long-term bonds in an auction meant to “increase liquidity”. Now for one thing, you know you’ve seriously f*cked up when you’re sucking so much high quality collateral out of the system that you have to sell bonds just to shore up market liquidity. For another, the bid-to-cover was just 2.32 versus 3.75 on January 26, so you can imagine what that meant for rates:
- JGB yields rise, led by super-long maturities; 10-year yield climbs 0.5 bp to 0.095%, 30-year rises 2bps to 0.91%
- Weak result of MOF’s liquidity-enhancing auction targeted at super-long zone shows demand for zone remains fragile, says Naoya Oshikubo, a rates strategist at Barclays
Here’s a rundown of Asian markets:
- Nikkei down 0.5% to 19,347.53
- Topix down 0.2% to 1,551.07
- Hang Seng Index up 0.5% to 24,107.70
- Shanghai Composite up 0.5% to 3,229.62
- Sensex up 0.5% to 28,307.33
- Australia S&P/ASX 200 up 0.1% to 5,816.31
- Kospi down 0.1% to 2,081.84
In Europe, stocks pulled back from seven straight days of gains which is probably healthy given that the bloc is on the brink of dissolution, so I’m not entirely sure it makes sense for equities to be this calm versus FX:
- STOXX Europe 600 down 0.3% to 370.26
- German 10Y yield unchanged at 0.372%
- Euro up 0.3% to 1.0635 per US$
- Brent Futures up 0.3% to $55.92/bbl
- Italian 10Y yield rose 0.9 bps to 2.242%
- Spanish 10Y yield fell 1.2 bps to 1.671%
Here’s your full docket for the US on Thursday:
- 8:30am: Housing Starts, est. 1.23m, prior 1.23m
- 8:30am: Housing Starts MoM, est. 0.0%, prior 11.3%
- 8:30am: Building Permits, est. 1.23m, prior 1.21m
- 8:30am: Building Permits MoM, est. 0.16%, prior -0.2%
- 8:30am: Initial Jobless Claims, est. 245,000, prior 234,000
- 8:30am: Continuing Claims, est. 2.05m, prior 2.08m
- 8:30am: Philadelphia Fed Business Outlook, est. 18, prior 23.6
- 9:45am: Bloomberg Consumer Comfort, prior 47.2
- 9:45am: Bloomberg Economic Expectations, prior 56
Futs are slightly lower, gold’s up, and oil’s up (after yesterday’s vacuum tube fest around the EIA numbers).
Happy trading.
