the world overall 02:15 - week in review

8/9/2019 The World Overall 02:15 - Week in Review

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The World Overall

One Financial | Andrei Wogen| [email protected]|For the Week of: 02/15

Last Week in Review

USD — It was made very evident last week that the US consumer is notresponding very well to the recent low fuel prices and overall lowerinflation that is current right now in the States. Retail sales came inmuch worse than expected with core retail sales also falling much morethan expected, with both printing negative for the month of January.Not a very good sign then for the overall health of the US economy orfor those looking for a Fed rate hike this year. I am still cautious on

expecting a rate hike this year from the Fed and if the consumercontinues to weaken like it has over the past couple of months or so,this will most surely put off any action from the Fed. Even in a smallincrease in rates. Overall though, it would appear that with weak wagescombined with still high debt levels, the consumer is still more apt tosave and pay off bills then to spend what they are earning. A couplethings to note though….one is that the US consumer, as least based onrecent sentiment data, continues to feel better and better and so onewould expect this to translate into more spending on their part. But ithasn’t and so an important divergence between these two continues todeepen. A second point to be made is that based on recent earningsfrom the US, the US retail sector is actually doing quite well and so whyoverall retail activity continues to show weakness, is a good questionand one which should be investigated further and one too I am sure the

Fed will be looking into a bit. But as already mentioned, if the consumercontinues to stay as weak as appear to be now, at least based on theretail sales data, this will definitely hold off rate hikes by the Fed.

GBP — The Bank of England’s quarterly inflation report showed thatthe Bank is looking to raise rates still but is expecting yet more lowerinflation going forward; at least for the time being. The Poundresponded with a good move upward on this report. In terms ofinflation, it looks like the BoE is doing what every other central bank isdoing out there and will look through the recent low inflation, whichhas been driven lower mostly by falling oil prices. But in the same letter,the Bank did say that if inflation continues to be weak for too long, theyare willing and ready to implement more QE and lower rates further.Kind of a mixed message then in my view, but the market spoke andseems to think the Bank’s next move is to the upside in rates. Looking atthe current condition of the UK too though, I am a bit pessimistic on thisfront. Business conditions and consumer activity has slowed in recentmonths pointing to some weakness in the UK economy. Wages thoughcontinue to strengthen and the jobs market continues to improve sosome good signs there. But I am thinking that rates will stay low for awhile in the UK and with inflation continuing to stay low, this is a likelyoutcome for a while yet. Though expectations outside of mine,including what the BoE put forth in their inflation report last week, are

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that the United Kingdom’s growth will continue to improve paving theway for a rate hike later this year or into next.

EUR — The Greece saga continues. Meetings held last week ended withno agreement and not even a statement. News from the meeting

between Greece and the EU and ECB though showed that both sides areholding to their views with little give from either side. The tone too

from this meeting seemed that things got a little heated between Greeceand everyone else as Greece tries to get some sort of extra funds and/ora renegotiation of their current bailout program while Germany, the EUand the ECB are very reluctant to give any grace in the matter. Moretalks are planned for the start of this week but whether anythingmeaningful comes from these talks is not very likely at this point in myopinion. As for data, preliminary fourth quarter GDP data from France,Germany, Greece, Portugal and the Euro Zone was in focus for theweek. Growth in the Euro Zone, Germany, Portugal and Italy came in

better than expected while Greece’s came in lower than expected andFrance continued to weaken in comparison to last quarter. Italian GDPalso continued to show the country is still very weak as year-over-yeargrowth continues to be negative. Overall though, things are looking a

bit better for the Euro Zone, at least for the last part of last year and this

is a bit of encouraging news.

JPY — Comments last week from the BoJ suggested there may be somechanges in their current QE program. Seems that the Bank is getting a

bit nervous with what they are doing in buying pretty much every assetthey can get their hands on in order to reach their target they have forQE. However, the market is still expecting more easing from them soon.All-in-all, if the BoJ does in fact pull away from their QE program thequestion I have is, what is left to help revive and sustain the Japaneseeconomy? In my mind, not much. Government reforms continue to beslow in being implemented and really the BoJ action, though huge, has

been the “best” thing for Japan right now. Japan could be in for a bumpy ride coming up.

CNY — Inflation data from China last week showed yet another fall inprices. Both year-over-year and month-over-month data came in weakerthan expected while producer prices fell further into negative territoryyet again. This has ratcheted up yet more expectations that the PBoCwill implement more easing in the form of a rate cut. But no signs ofthat yet. However, it should be noted that the Bank does continue topump money into the banking sector and last week expanded a short-term financing program to all banks in the country with increasedfocused on rural banks. But with yet lower inflation and continuedweakness in the domestic economy, these sort of measures will likelynot be enough to fend off a harder landing than the Chinese authoritieswant in their economy while they continue to implement reforms. Somore aggressive easing is likely to come. The real question is when.

UAH — A cease-fire agreement was made between Ukraine and Russialast week which is supposed to start on February 15th. But intensefighting in Ukraine the following day showed just how unlikely it isthat this agreement will be completely respected by all sides, let alonekept and followed over the longer term. Also too, agreements like thisworry me. All it is doing is giving more time to Putin to figure out hisnext move and that will very likely not be good for Ukraine or otherBaltic states for that matter. I am also not convinced that Ukraine isPutin’s one and only target and is simply just a test target, if you will.

Ruble gains some vs. the Dollar on

news of the Ukraine deal



What should happen then at this point, in my opinion, is that moresevere sanctions need to be put on Russia and the threat of arms fromthe US needs to be ratcheted up more. Though I am not so sure thatsending them over is a good idea without some involvement by the US;i.e., some sort of boots on the ground. On the surface then thisagreement seems to be yet more calm before a yet another new andworse storm is to begin. Let us hope that the leaders involved in these

agreements see this too, causing them to implement yet more actionagainst Russia to help alter Putin’s course of action and mindset.

AUD — Australian employment data showed a big fall in the numberof newly employed and a bigger rise than expected in theunemployment rate. Overall it was a pretty dismal report on the jobsmarket in Australia and ratcheted up expectations that the RBA will cutrates again in March. I think though, the RBA will want to wait a bitlonger, through the summer in fact to make a further move in ratesthough I do expect them to cut once more this year.

SEK — Sweden’s central bank cut its interest rate to negative as the bank joins a lot of other central banks trying to weaken their currency tohelp along their economies. They also implemented QE, though a small

amount in comparison to what the ECB is going to do or what the UShas done. Still though, this movement continues to tell me that the

battle between central banks continues as global growth continues tostay weak while inflation continues to fall.

What to Watch this Week

GBP — This week has two key events to watch for from the UK. First,on Tuesday, January inflation data will be released. My expectations,

and I am sure of the markets, is that inflation will continue to fall asfalling oil prices continue to feed their way through the data. But as weheard from the Bank of England last week, this data may not be asimportant as it usually is for the markets, at least for the time being asthe Bank has opted to look through any low inflation data for the nextcouple of months or so as the effects of oil work their way through. Sothe markets will likely look through any weak inflation data for the time

being as well. So, attention will likely be given more to the other eventthat is scheduled this week for the UK and the Pound, which will be therelease of the Bank of England’s meeting minutes from their meetingearlier this month. At that meeting they opted to leave rates as theircurrent low levels and left their QE program unchanged. In light of thisdecision, I don’t expect there to be much change in the language of theirminutes. But if the inflation report last week is any indication, I’d say

the biggest risk is for a more optimistic tone to the minutes and whichcould therefore give the Pound yet another lift. The other data for theweek to watch for is monthly employment and wage data onWednesday.

USD — Minutes from the FOMC’s most recent meeting being releasedon Wednesday, will be in focus for the US markets, and in fact the worldmarkets. It is hard to tell what the Fed will have to say in their minutes.From the tone we are seeing in their meeting statement, they seem to becomfortable to stay as they are in terms of policy and to wait and be

AUD/USD — retraced all its RBA-cutlosses seen on the far left



“patient” in respect to raising rates. But listening to Fed memberstalking, it would seem the complete opposite is evident as the member’stone is actually pretty optimistic on both the US economy and whenrates are likely to rise. My personal bet though is that the tone of theminutes will be more pessimistic than the tone that we’ve heard fromFed members who have spoken in public recently. The other data ofinterest next week, at least for me, will be consumer sentiment numbers

on Thursday. I am interested to know whether consumer sentiment will begin to turn lower, reflecting the lower retail sales data shown yetagain last week. We also have monthly industrial production numbersand building permits and housing starts data throughout the week aswell as weekly jobless claims.

EUR — The sage in Greece will continue to dominate markets in termsof what they will continue to pay attention to. Meetings between Greeceand the Troika on Monday will kick off the week for the Greece story.Expectations are still that there will be an agreement in the end of allthis but from where I am sitting, this is going to take quite a bit of effort.From what I’m reading and seeing, things are very tense betweenGreece and everyone else and an agreement is a ways off yet in myopinion. Besides this story, this week will also include the release of the

ECB’s first meeting minutes on Thursday. And what a time to get ourfirst minutes from the ECB with them planning on implementing QEsoon and as they currently have very accommodative policy in order tohelp stave off deflation and improve growth in the Euro Zone. I will bewatching for comments on QE though and what the members thoughtsabout were during the meeting last month. This will be especiallyinteresting to me as we heard last week from an ECB member who saidthere may be issues with doing QE. Seems to me that QE from the ECBstill might be a no-go in the end. As for data, we will get sentiment dataand a first look at manufacturing and services PMI data for Februarythroughout the week.

JPY — This week will be a busier one in Japan with both prelim Q4GDP data and the BoJ’s monthly meeting occurring. With comments lastweek from the BoJ regarding QE (see above) both these releases aremore important than usual I think. If Q4 GDP data is weaker thanexpected and continues to show the country in recession, this will mostsurely increase expectations for more QE coming from the BoJ. As forthe BoJ meeting, this will likely be their most important meeting for awhile, probably since last October when the Bank increased their QEprogram, in light of the comments coming from them regarding theircurrent policy. If there is indeed a change in their policy coming, whichwill very likely mean a reduction in their QE, this will affect marketsand at the same time cause great worry. Especially if growth is still asweak as it is now. This is definitely a development to watch.

EUR/USD — still got some demand as

the market does not seem too worried

about Greece….yet



Economic Calendar

Region Event/Data Expected Date Time (EST)

Europe EuroGroup Meetings (Greece) 02/15 All Day

JapanPreliminary Q4 GDP q/q

0.9 02/15 6:50pm

China New Loans (Jan) 1,350 billion Yuan 02/15 9:00pm

Australia RBA Meeting Minutes 02/16 7:30pm

China House Price Index 02/16 8:30pm

United Kingdom CPI y/y (Jan) 0.3% 02/17 4:30am

United Kingdom Core CPI y/y (Jan) 1.5% 02/17 4:30am

Germany ZEW Economic Sentiment 55.0 02/17 5am

Switzerland SNB Jordan Speech 02/17 12pm

United Kingdom BoE Meeting Minutes 02/18 4:30am

United States FOMC Meeting Minutes 02/18 2pm

the world overall 02:15 - week in review

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