‘60% Of The Time, It Works Every Time’: Full Week Ahead Preview

Ok, well good news: we’ll get a break from potentially market-moving scheduled events this week.

Notice I said “scheduled” events. That’s a category that does not include impromptu staff changes at 1600 Pennsylvania, declarations of war made via Twitter, subpoenas for Trump associates, precious metals flash crashes, and/or ICBM launches.

One thing worth watching this week is the dollar, which just posted its first winning week in four on the strength of Friday’s NFP beat and amid jawboning from Gary Cohn:

Of course as far as the U.S. economy goes, it’s still the labor market versus inflation and we’ll get CPI this week. That comes on the heels of the decent AHE print that accompanied Friday’s jobs report, a print that softened the blow from the previous week’s ECI miss.

Here’s Goldman on CPI (do note the hilarious list of potentially “important” factors that includes everything from cigarette taxes to T-Mobile plans):

Core CPI (yoy), July (GS +1.8%, consensus +1.7%, last +1.7%) We expect a 0.21% increase in July core CPI (mom sa), which would be its fastest pace since January and would produce a one tenth increase in the year-over-year rate (to +1.8%). Our forecast reflects a boost from the second California tobacco tax increase of the year — a roughly US$2 per pack increase effective July 1 — as well as stabilization in used car prices, and mean reversion in airfares, apparel, and lodging following recent weakness. We also expect a reprieve from cell phone plan disinflation in the communication category, as a price hike for some T-Mobile plans is likely to offset new discounts offered by a few smaller pre-paid carriers. We also expect an above-trend increase in education prices, reflecting firming college tuition inflation indicated by press reports and university budget summaries. We estimate a 0.2% rise in headline CPI, reflecting rising food prices but a modest decline in energy prices. This would be consistent with the year-over-year rate rising two-tenths to 1.8%.

BofAML sees the same thing. Barclays, ditto.

I suppose you can look at that one of two ways. What we got on Friday following NFP seems to suggest that the “USD risk remains skewed to appreciation” – as Barclays puts it. That said, the knee-jerk move lower after the Mueller headline hit on Thursday afternoon underscores the extent to which bearishness remains firmly entrenched and prone to manifesting itself in the price action at a moment’s notice and on any excuse. It’s the same dynamic in Treasurys.

We’ll also get the latest read on China’s FX reserves this week. As you’re undoubtedly aware, the harrowing burn rate we saw following the August, 2015 deval has slowed to a standstill, although depending on how deep down that rabbit hole you want to go (i.e. how aggressively you want to parse the data), you can find a way to poke holes in the headline numbers. Here’s a simple snapshot:

You’ll recall that back in late May/ early June the PBoC engineered a yuan short squeeze and part of that effort involved incorporating a new (and absurdly opaque) “counter-cyclical adjustment factor” in the fixing formula. That certainly looked like an attempt to get out ahead of the June Fed meeting. A preemptive move was preferable to a post-Fed OMO hike as raising rates any further would have risked overtightening. So instead, Beijing simply rolled back (or at least put a pause on) the FX liberalization push to preempt any capital flight that might have accompanied a hawkish interpretation of the Fed hike.

Well, the depreciation pressure started building again in mid-June, so they stepped up the interventions, and since then, they’ve had a free ride with the dollar in the doldrums, although that creates its own problems for Beijing in terms of managing the CFETS basket. In short: it’s fucking complicated.

Ultimately, the yuan is closing in on 10-month highs and the fixes have been the strongest since October. The offshore yuan very nearly logged a fourth consecutive weekly advance last week, which would have been the longest winning run since June 2:

All of this has caused the Street to rethink estimates:

“The PBOC would probably maintain yuan strength ahead of the Party Congress in the fourth quarter,” Ken Cheung, an Asian currency strategist at Mizuho Bank Ltd. in Hong Kong said earlier this month. “China has the incentive to seek yuan strength, given its policy priority has shifted to attract inflows as growth momentum remains intact in the first half.”

So that’s the backdrop for the FX reserve numbers. Here’s Barclays:

A likely continuation of Chinese foreign reserve accumulation from the January lows below USD3trn should provide another indication of improved market sentiment towards China and the effectiveness of recent government efforts to stabilize the currency. Furthermore, recent media reports (Bloomberg) suggest policymakers are transitioning from a desire for currency stability to becoming more tolerant of CNY appreciation and are considering measures to increase its flexibility. As such, we continue to like the CNH for carry.

And here’s a preview of the China data deluge that’s on the horizon:

There are some Fed speakers this week and that’s of course worth noting. Here’s a quick rundown from Goldman:

Monday, August 7

11:45 AM St. Louis Fed President Bullard (FOMC non-voter) speaks St. Louis Fed President James Bullard will give a speech on the U.S. economy and monetary policy at the America’s Cotton Marketing Cooperatives’ annual conference in Nashville, Tennessee. Audience and media Q&A is expected.

01:25 PM Minneapolis Fed President Kashkari (FOMC voter) speaks Minneapolis Fed President Neel Kashkari will participate in a moderated audience Q&A session at an event hosted by the Sioux Falls Rotary Club in South Dakota.

Wednesday, August 9

11:00 AM Cleveland Fed President Mester (FOMC non-voter) speaks Cleveland Federal Reserve President Loretta Mester will give the keynote speech at the Community Bankers Association of Ohio’s Annual Convention in Cincinnati, Ohio.

01:00 PM Chicago Fed President Evans (FOMC voter) speaks Chicago Fed President Charles Evans will discuss current economic conditions and monetary policy in a closed group interview with representatives of the press in Chicago.

01:30 PM San Francisco Fed President Williams (FOMC non-voter) speaks San Francisco Fed President John Williams will give a speech titled “Monetary Policy’s Role in Fostering Sustainable Growth” in Las Vegas, Nevada. Audience and media Q&A is expected.

Thursday, August 10

10:00 AM New York Fed President Dudley (FOMC voter) speaks New York Fed President William Dudley will give opening remarks at an “Economic Press Briefing on Wage Inequality in the Region” held at the Federal Reserve Bank of New York. Audience and media Q&A is expected.

Friday, August 11

09:40 Dallas Fed President Kaplan (FOMC voter) speaks Dallas Federal Reserve President Robert Kaplan will take part in a moderated Q&A session at the sixth annual CPE day hosted by the University of Texas at Arlington’s Accounting Department. Audience and media Q&A is expected.

11:30 AM Minneapolis Fed President Kashkari (FOMC voter) speaks Minneapolis Federal Reserve President Neel Kashkari will participate in a moderated audience Q&A session at the Independent Community Bankers of Minnesota’s annual convention in Bloomington, Minnesota.

And yes, that is an absurd amount of Fedspeak and it would be far preferable if they would eschew these “opportunities” in favor of quiet reflection, because regardless of whether they intend to have an impact on markets or if these particular engagements have any relevance for traders at all, any comments will be parsed relentlessly.

There’s also the RBNZ which is worth watching after the abysmal set of employment data that tanked the kiwi last week. “In New Zealand, disappointing Q1 GDP, unexpectedly low inflation pressures and poor employment growth will have to be acknowledged by the RBNZ and should contribute to a more cautious message,” Barclays notes, adding that “impending policy and political uncertainty may also form part of the press conference discussion and weigh on the NZD.” So there’s that.

Other notables include RBA governor Lowe’s semi-annual testimony to the House Economics Committee and current account and trade balance, money supply, machine orders and PPI out of Japan.

Here’s a full calendar from BofAML:

Oh, and as for stocks, don’t forget that according to Yale’s one-year investor confidence indices (so, percentage of respondents who think stocks will be higher a year from now), both the “smart” money and the “dumb” money are now 100% confident that nothing can go wrong:

Can you trust that kind of dangerous groupthink?

Sure you can.

Because “60% of the time, it works every time“…

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