The Week Ahead – NZD and NEO

The Week Ahead – NZD and NEO

Previous week: 18 September 2017 – 22 September 2017

US Crude oil inventories—10.30 pm 20 September 2017 Wednesday

US crude inventories increased by +4.59 million barrels on the expectation of +3.9 million increase. Baker Hughes US oil rig count decreased by 5 from 749 to 744. Oil production was 9510 barrels per day for week ending 15/09/2017, an increase from 9353 barrels per day in the previous week. Production is now at pre Harvey levels.

Image taken from Zerohedge:

Federal funds rate, FOMC statement, Press conference, Economic projections—2am 21 September 2017 Thursday

FOMC left Federal funds rate unchanged at 100 to 125 basis points and will initiate Quantitative Tightening in October.

Key Points from Press Release “Federal Reserve issues FOMC statement” dated 20 September 2017:

  • Inflation on a 12-month basis is expected to remain somewhat below 2 percent in the near term but to stabilize around the Committee’s 2 percent objective over the medium term. Near-term risks to the economic outlook appear roughly balanced, but the Committee is monitoring inflation developments closely.
  • The Committee decided to maintain the target range for the federal funds rate at 1 to 1-1/4 percent. The stance of monetary policy remains accommodative.
  • The Committee expects that economic conditions will evolve in a manner that will warrant gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.
  • In October, the Committee will initiate the balance sheet normalization program described in the June 2017 Addendum to the Committee’s Policy Normalization Principles and Plans.

Key points from “Federal Reserve Board and Federal Open Market Committee release economic projections from the September 19-20 FOMC meeting” dated 20 September 2017:

Image taken from FOMC:

  • The Fed improved its projection on economic growth (GDP) and the labour market (unemployment rate) as had been the ongoing trend
  • However, inflation expectation was downwardly revised. Core PCE inflation for 2017 was dropped two tenths of 1% from 1.7% to 1.5%.
  • The Fed still sees that further tightening of monetary policy via Federal Funds rate but at a slower pace as previously predicted. This less aggressive tightening of monetary policy is in line with the more pessimistic projection of inflation rate.
  • The Fed still expects one more rate hike by December 2017. 12 members unofficially voted for a rate hike by December 2017 while 4 preferred to for no change in rates.

Image taken from Zerohedge:

BOJ Policy Rate, press conference, monetary policy statement—21 September 2017 Thursday

The Bank of Japan did nothing as expected. However, the vote count the reading the finer prints are very noteworthy. For what it is worth, all 9 voting members of the BOJ are now appointed by the government led by Shinzo Abe. All of them are doves, with one of them of the stance that current policies are still insufficient.

Image taken from the Bank of Japan on “Statement on Monetary Policy” dated 21 September 2017:

Key points from the statement:

  • The Bank decided, by an 8-1 majority vote, to set the following guideline for market operations for the intermeeting period. [Note 1] Voting against the action: Mr. G. Kataoka. Mr. G. Kataoka dissented, considering that, since there remained an excess supply capacity in capital stock and the labor market, monetary easing effects gained from the current yield curve were not enough for 2 percent inflation to be achieved around fiscal 2019.

Mr Kataoka, whom I have previously profiled to be a “don’t rock the boat dove”, participated in his first BOJ meeting. He did not disappoint. Rather, he exceeded expectations and from his vote and explanation, was the most dovish member committee. In the past, the vote was 7-2. The 2 whom dissented, dissented for hawkish reasons. These two hawks ended their terms and were replaced by 2 doves. The BOJ for the foreseeable future will consist of 9 doves and 0 hawks, among which one of them is an uber-dove.

  • 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 an improvement in the output gap and a rise in medium- to long-term inflation expectations. [Note 2] Mr. G. Kataoka opposed the description on the outlook for the CPI, considering that, although the year-on-year rate of change in the CPI was likely to increase for the time being reflecting developments in crude oil prices and foreign exchange rates, the possibility of the rate of change increasing toward 2 percent from 2018 onward was low at this point.

Mr Kataoka, the uber-dove, unlike the 8 other members is not a believer that with the current monetary policies, inflation will move north to 2% target. From his vote and explanations, it is safe to assume that he wants further loosening of monetary policy.

  • The Bank will continue with “Quantitative and Qualitative Monetary Easing (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.

Donald says this, Jong-un says that

Donald called Jong-un a “rocket man” while Jong-un responded by calling Donald a “mentally deranged U.S. dotard”. Even though it is my opinion that nuclear war will not occur, it is undeniable that tensions between feuding parties have escalated and will continue to do so. North Korea is now threatening to detonate a hydrogen bomb in the Pacific Ocean. What if, in the off-chance, a mistake occurred and a nuclear warhead detonates over the sovereign land of Japan? The result of such a mistake will, without a shadow of a doubt, be a declaration of war.

Coming week: 25 September 2017 – 29 September 2017

US Crude oil inventories—10.30 pm 13 September 2017 Thursday

Another draw in inventories?

RBNZ official cash rate, rate statement—4am Thursday 28 September 2017

No change is expected.

Trade Ideas

Long Gold?

Gold is now at $1300 support. The two current drivers of the gold price are rising interest rates and increasing international tensions.

Iran announced that it had successfully tested a new ballistic missile. The timing of this test was scheduled before Trump’s imminent announcement on whether Iran is in compliance with the non-nuclear proliferation agreement. With this missile test, I guess it is the final nail in the coffin for Obama’s nuclear deal with the rogue state of Iran.

There is nothing more to be said with regards to the ongoing beef between the two most egoistical men, Donald Trump and Kim Jung-un. When you corner a cat with no way out, the cat will have no choice but to attack. When you put a noose around the neck of the rogue state of North Korea, they have no choice but to take an offensive countermeasures.

Interest rates in US have begun and will continue to rise. Which driver will prevail is anyone’s guess.

Short NZD/USD?

NZD/USD is having trouble breaking above the resistance zone at 0.73 to 0.74.

New Zealand’s second largest trading partner, behind Australia, is China. Standard and Poor’s downgraded both China and Hong Kong because China’s credit growth was too fast.

The Federal Reserve is resolute in its pursuit to tightening monetary policy, both raising the Federal Funds Rate and initiating Quantitative Tightening. I was wrong in saying that Fed’s tightening stance was priced in the market.


As much as I would like to do a deep research into cryptocurrencies, I acknowledge that I am far from competent in this subject. A friend of mine works at Lykke and shared with me a report their firm wrote.


A giant flag is forming in NEO/USD.


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