Former FX trader Richard Breslow has delivered his final missive for the week and it’s a good one. Concise, cogent, and sprinkled with a dash of trademark Breslow-vian condescension.
This week has been all about DM central bankers playing “good cop/ bad cop.”
The idea was actually pretty smart – in a devious kind way. Poloz would hike, proving how “serious” the hawkish shift is (“see, we pulled the trigger“), but Yellen would lean dovish.
Of course they knew no one was going to trade off the BoC – it is Canada, after all. Everyone would trade off a dovish Yellen. So they could keep the risk party going while squeezing in a hike to preserve the integrity of the coordinated hawkish push, and then, if anything moved too far in one direction or the other, the ECB could tweak things with leaks to WSJ and Reuters.
Well, Breslow thinks Yellen “shouldn’t have blinked” (specifically, he thinks she should have gotten her “roll” on). That may not be the prevailing wisdom but as you’ll read below, Breslow thinks that “everyone is wrong but him“…
You can palpably feel the market’s enervation as we limp to the week’s finish line. There have been somewhat decent trading ranges but volumes are low and interest has been described as lackluster. I can just imagine how the Sunday phone calls will go. “How was your week, you sound tired?” “Just more of the same, Mother”. There was a real possibility last Monday that things were heating up. Global yields were showing life. It seemed like an easy choice to pick 3% over 2.3% when asked which will happen first for the ten-year. Central banks were orchestrating a coordinated push to raise rates in celebration of a strengthening world economy. Canada was going to signal that the plan was in full-effect.
- And now? Dovish Fed speak, wavering ECB leaks, resolute BOJ actions, completely mixed emotions from the BOE and suddenly it doesn’t feel nearly as fun. Well I am of the opinion that everyone is wrong but me. The central banks shouldn’t have blinked and the market should have cried foul, rather than throwing up their positions in anguish. And it’s a careless mistake to belatedly write off Poloz’s hawkish hike as sui generis
- Yields are still going to work their way higher, precious metals have limited upside, carry won’t be as simple a way to ensure a comfortable pension and, yes, even equities are suspect. It’s just going to take a little longer than it should. But the longer they wait, the harder it will be to pull this all off painlessly. You shouldn’t wait for all your friends to catch-up before crossing a rickety bridge. Pencil in the Jackson Hole dates
- Today’s CPI report has become even more important than before. The Fed has told us that weak and weakening inflation measures are just transitory conditions. But if they don’t pick-up real soon, they’re going to take them at face value. Well thanks for that. The only good thing is that traders now assume this number is destined to be weak. Expectations are being marked down so the print doesn’t feel as disappointing. Can you imagine what happens on a beat? Egg, meet face
- With today driven by noise, I’ve settled on watching the once again exceedingly buoyant MSCI Emerging Currency index for clues as to how people are digesting the day’s news
We actually agree with most of what Breslow says there, but we couldn’t resist…