Previous week: 17 July 2017 – 21 July 2017
RBA Monetary Policy Meeting Minutes—9.30am 18 July 2017 Tuesday
UK CPI y/y—4.30pm 18 July 2017 Tuesday
UK CPI y/y for the month of June was +2.6% on the expectation of +2.9%. Last month was +2.9%. This means that the probability of a rate hike by the Bank of England in their next meeting will be decreased. Imported inflation caused by weakened British Pound seemed to have started to drop off in the calculation of CPI. With worries of inflation running above 3% now alleviated, members of the BOE will have less motivation (though non-zero probability) to raise rates.
US Crude oil inventories—10.30pm 19 July 2017 Wednesday
US crude inventories decreased by -4.727 million barrels on the expectation of -3.5 million drop. Baker Hughes US oil rig count decreased by 1 from 765 to 764. Oil production was 9429k barrels per day for week ending 14/07/2017, an increase from 9397k barrels per day in the previous week.
The question now is whether the rig count will start to decline in lagged response to the drop in oil price from $55 to $44 a barrel. The next question is whether this reduction in rig count will depress the rate of oil production in These United States.
BOJ Outlook Report, Policy Rate, Press Conference, Monetary Policy Statement—20 July 2017 Thursday
The Bank of Japan left their monetary policies unchanged as expected despite admitting that their uber-loose monetary policies will not artificially increase prices at the satisfactory pace until around FY 2019.
- BOJ Maintains 10-Year JGB Yield Target at About 0.000%
- BOJ Maintains Policy Balance Rate at -0.100%
- 80 trillion yen target purchasing remains in place
They raised their GDP forecasts for Fiscal Year 2017 and 2018 while still see risks to growth in 2019. However the most pertinent point they made in this meeting was the downgrade of their core inflation expectations when compared against the expectations they made in their previous meeting in April 2017. FY 2017 CPI 1.4% à 1.1%, FY 2018 CPI 1.7% à 1.5%, FY 2019 CPI 1.9% à 1.8%. They have pushed back the date at which they expect to reach their 2% core inflation target to “around fiscal 2019”.
Key paragraphs from “Outlook for Economic Activity and Prices July 2017” by the Bank of Japan
- “Comparing the current projections with the previous ones, the projected growth rates are somewhat higher. The projected rates of increase in the CPI are lower, mainly for the first half of the projection period.”
- “With regard to the risk balance, risks to both economic activity and prices are skewed to the downside. On the price front, the momentum toward achieving the price stability target of 2 percent is maintained as the output gap is expected to continue improving and medium- to long-term inflation expectations are projected to rise gradually; however, the momentum is not yet sufficiently firm, and thus developments in prices continue to warrant careful attention.”
- “Nevertheless, with regard to the outlook, the year-on-year rate of change in the CPI is likely to continue on an uptrend and increase toward 2 percent, mainly on the back of the improvement in the output gap and the rise in medium- to long-term inflation expectations. Comparing the current projections with the previous ones, although the projected rates of increase in the CPI are lower mainly for the first half of the projection period, a virtuous cycle between a moderate rise in the inflation rate and wage increases is likely to start operating gradually toward the end of the projection period — that is, toward fiscal 2019. The timing of the year-on-year rate of change in the CPI reaching around 2 percent will likely be around fiscal 2019.”
- “As for the conduct of monetary policy, the Bank will continue with “QQE with Yield Curve Control,” aiming to achieve the price stability target of 2 percent, as long as it is necessary for maintaining that target in a stable manner. It will continue expanding the monetary base until the year-on-year rate of increase in the observed CPI (all items less fresh food) exceeds 2 percent and stays above the target in a stable manner. The Bank will make policy adjustments as appropriate, taking account of developments in economic activity and prices as well as financial conditions, with a view to maintaining the momentum toward achieving the price stability target.”
Screenshot from Bank of Japan’s “Statement on Monetary Policy” dated July 20, 2017
Screenshot from “Outlook for Economic Activity and Prices, July 2017” by the Bank of Japan.
Just a reminder of the monstrosity of the task Kuroda and friends have got to tackle / have been tackling. Well, at least his two constant dissenters (Kiuchi, Sato) will be leaving the BOJ after this meeting and will be replaced by two “don’t rock the boat” economists (Suzuki, Kataoka).
ECB Minimum Bid Rate, Press Conference, Monetary Policy Statement—7.45pm 20 July 2017 Thursday
The European Central Bank kept their monetary policies unchanged. The statement in July’s meeting is exactly the same as that in the meeting in June.
Key sentences from ECB’s Press Release on “Monetary policy decisions” dated 20 July 2017:
- The Governing Council expects the key ECB interest rates to remain at their present levels for an extended period of time, and well past the horizon of the net asset purchases.
- If the outlook becomes less favourable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, the Governing Council stands ready to increase the programme in terms of size and/or duration.
Key points from Mario Draghi Press Conference from Zerohedge / Bloomberg:
- DRAGHI SEES RATES AT PRESENT LEVEL WELL PAST END OF QE
- DRAGHI: QE WILL RUN AT EU60B/MONTH PACE THROUGH AT LEAST DEC.
- DRAGHI: QE WILL RUN UNTIL ECB SEES SUSTAINED INFLATION PICKUP
- DRAGHI SAYS ECB MEASURES PRESERVE FAVORABLE CONDITIONS NEEDED
- DRAGHI SAYS INCOMING DATA CONFIRM STRENGTHENING ECONOMY
- DRAGHI SAYS RISKS TO GROWTH ARE BROADLY BALANCED
- DRAGHI SAYS RECOVERY HAS BROADENED
- DRAGHI SAYS ECONOMIC EXPANSION HAS YET TO FED THROUGH TO PRICES
- DRAGHI SAYS HEADLINE INFLATION DAMPED BY WEAK ENERGY PRICES
- DRAGHI SAYS UNDERLYING INFLATION PRESSURES REMAIN SUBDUED
- DRAGHI SAYS VERY SUBSTANTIAL DEGREE OF ACCOMMODATION IS NEEDED
- DRAGHI SAYS ECB READY TO BOOST SIZE, DURATION OF QE IF NEEDED
- DRAGHI SAYS SURVEY RESULTS SIGNAL SOLID, BROAD-BASED GROWTH
- DRAGHI SAYS STIMULUS PASS-THROUGH SUPPORTS DOMESTIC DEMAND
- DRAGHI SAYS GLOBAL RECOVERY SUPPORTS TRADE, EXPORTS
- DRAGHI SAYS EURO-AREA GROWTH DAMPED BY SLUGGISH REFORM PACE
- DRAGHI SAYS RISKS TO GROWTH ARE BROADLY BALANCED
- DRAGHI SAYS MOMENTUM INCREASES CHANCES OF STRONGER UPSWING
- DRAGHI SAYS DOWNSIDE RISKS PREDOMINANTLY DUE TO GLOBAL FACTORS
- DRAGHI SEES INFLATION AROUND CURRENT LEVEL IN COMING MONTHS
- DRAGHI SAYS MEASURES OF UNDERLYING INFLATION REMAIN LOW
- DRAGHI: CORE INFLATION TO RISE GRADUALLY OVER MEDIUM TERM
- DRAGHI: CORE INFLATION HAS YET TO SHOW CONVINCING UPWARD TREND
- DRAGHI: ECB MEASURES SUPPORT BORROWING CONDITIONS SIGNIFICANTLY
- DRAGHI SAYS STRUCTURAL REFORMS MUST BE STEPPED UP SUBSTANTIALLY
- DRAGHI URGES OTHER POLICY ACTORS TO CONTRIBUTE MORE DECISIVELY
- DRAGHI SAYS ECB TOOK STOCK OF CONTINUED IMPROVEMENT IN ECONOMY
- DRAGHI SAYS TAPERING SCENARIOS ARE NOT BEING DISCUSSED
Further expounding on point 28 regarding tapering discussion via Question and Answer transcript:
Question: Could you give us a bit of a flavour of the discussion at today’s meeting? Mainly, have you held any formal talks about your strategy for the asset purchase programme after December of this year?
Draghi: Let me respond first to your first question and give you a sense of the discussion we had today. We reviewed the economic and financial developments in the euro area, where we took stock of the continuing improvement in growth momentum, but also of the fact that the inflation rate is still subdued – and really there isn’t any convincing sign of pickup for underlying inflation – while noting that the headline inflation will still be fairly volatile in the coming months. There was a general reiteration of the point that convergence of the inflation to our objectives remains conditional upon the very substantial monetary accommodation that is now in place.
So, all in all, one could try to summarise the exchange of views we had saying that it was around the concepts that we’ve expanded on on other occasions, like the concept of confidence that is basically generated by the growth momentum; but also the fact that we need to be persistent and patient, because we aren’t there yet. And prudent. We also were unanimous in communicating no change to the forward guidance; and also we were unanimous in setting no precise date for when to discuss changes in the future.
In other words, we simply said that our discussions should take place in the fall – or in the autumn, since we are in Europe.
Coming week: 10 July 2017 – 14 July 2017
UK Prelim GDP q/q—4.30 pm 26 July 2017 Wednesday
Getting a sense on how output growth out of UK in the second quarter of 2017 will give us a flavour on the likelihood of a rate hike from the BOE. Just a flavour because at present it seem to be a coin toss / close call on whether there are 5 votes in favour of a hike out of 9.
US Crude oil inventories—10.30 pm 26 July 2017 Wednesday
Another draw in inventories and rise in production?
FOMC Statement, Federal Funds Rate—2am 27 July 2017 Thursday
No change in rates is expected. Most probably a non-event but language out of the non-data dependent Fed will always be important when getting a sensing on whether further tightening (rate hike and/or Quantitative Tightening) will occur in December. Plus there is no press conference. No press conference means no change in monetary policy. A pattern that had not been broken in years despite Yellen saying that “every meeting is a live meeting”.
EUR/USD to watch
EUR/USD is now broken cleanly through the resistance level at 1.1450 of the channel formation. Possible buying opportunity if it retests new support zone at 1.1450.
AUD/USD to watch
AUD/USD just recently broke above the long standing resistance at 0.7700 and closed near the high of the previous week. This indicates that buying pressure/momentum is present and chances of it being a fake out is diminished. Waiting for a retracement back down to 0.7700 zone would give a good opportunity to go long this currency pair. Next resistance zone will come in at around 0.9000 and 0.9600.
NZD/USD to watch
NZD/USD had broken out of its sideways channel pattern last week and closed near the high of the week. This indicates that buying pressure is present and that the probability of a fake out will be diminished. Waiting for it to retrace back down to 0.7300 zone before buying will be advantageous.
Trump met Putin in the toilet?
Honestly I am pretty sick and tired of reading news headlines that contains “Trump”, “Russia”, or “Collusion”. The mainstream media keeps emphasizing the point that Trump’s campaign “colluded” with the Russians. The word “collusion” is so vague that it is can mean almost anything. I keep hearing / seeing the word “collusion” but with zero substantiation to prove “collusion” or explain what it actually means. The mainstream media clearly knows that the more times they repeat the same point, the more truthful the point becomes. Just by repeating it enough times, opinion becomes fact. They probably took a page out from Trump’s playbook when he repeated the phrase “Make America Great Again” and “Crooked Hillary” all throughout the Presidential campaign and won fair and square.
If the objective is to get the Trump voters to change their opinions on him, it is not working. In fact it may have the opposite effect and strengthen Trump’s “Fake News” argument. According to Gallup, American’s trust in mass media had sunk to a new low. The more the media continues to crucify Trump, the more people in rural America will hate the media and hence the Establishment. There are 50 states in the Unites States, not just New York, California, and District of Columbia. If the mainstream media, and hence the Establishment, continues to live in their New York – DC cocoon, they will continue to lose future elections.
Money (a form of speech according to Citizens United v. FEC, etc) used to be the medium at which political parties compete to win elections. Not anymore. Case in point would be the by-election in the 6th Congressional District of the State of Georgia. Despite outspending the Republican candidate by a factor of 7.6 times, the Democratic candidate could not close the sale. Even the pollsters had been calling the race a slam dunk win for the candidate from the D camp. O not to forget, Trump—the businessman and reality TV star spent far less than the Hillary—the career politician and won handily.
The tide had changed. People do not want the Establishment status quo. People want change. If the Democratic party do not embrace Progressive policies and politicians (Bernie Sanders, Elizabeth Warren), they will continue to lose election after election to those in the R camp. New York – DC pundits are already hinting of the possibility that the Democrats will win back the legislative branch (House of Representatives and Senate) from the Grand Old Party. With the current don’t-rock-the-boat-status-quo strategy, that blissful thought be foreclosed upon and will stay only in the realm of a blissful thought.
Credits to Comically Incorrect for the image (ComicallyIncorrect, 2017)