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Good Morning: The Long & the Short of it and The Bigger Picture - 9 October 2019 - ADM ISI


Ostwald, Marc
08:41 (6 minutes ago)

to Marc

- Modest run of data: digesting Oz Confidence slide, Norway GDP and France
BoF Industry Sentiment, awaiting US JOLTS Job Openings, Mexico & Brazil
consumer Prices; UK FPC & US FOMC minutes accompanied by more Fed speak
and IMF World Economic outlook update; politics still ruling the roost

- Fed: scepticism on Fed balance sheet moves understandable, but this is
not 'stealth' QE, and should help money market liquidity conditions for
a number of reasons

- Audio preview

- Charts: EUR/GBP and GBP/USD



Markets remain hostage to political whim and whimsy, all too often full of pugnacious vitriol and/or blatant mendacity, but whimsy nevertheless. Thus Brexit developments, US/China trade talks speculation and the impeachment inquiry will remain very much front and centre, along with the various points of very heightened tension in the Middle East. The day's statistical schedule seems unlikely to stir much reaction, with the sharp slide in Australian Consumer Confidence and Norwegian monthly GDP (as expected net of revisions0 to digest ahead of Brazilian & Mexican consumer prices and US JOLTS Job Openings. In terms of Brazilian and Mexican inflation data, the former is expected to see little change in m/m terms, thanks to benign food price trends and little/no impact from recent BRL weakness, which would keep the y/y rate around 3.0% and thus well below the 4.25% target, giving the BCB scope to cut rates further. In Mexico steady food and energy prices in m/m should combine with benign base effects to drag y/y headline to target at 3.0%, though core will continue to remain well above at 3.8%, but falling nevertheless in trend terms. US JOLTS Job Openings are expected to edge up to 7.25 Mln from 7.217 Mln, underlining that while openings are off the high of 7.626 Mln in November 2018, they remain high by any historical standard, and echoing yesterday's NFIB survey, which continued to suggest considerable skills shortages leading to difficulties in filling open positions.

Having heard from both Powell and George this week, it seems improbable that either will offer much that is new, or that today's September FOMC minutes will add anything new to the Fed policy outlook equation, or the differences of the opinion. In terms of the measures that Powell outlined yesterday, there will naturally be some that are sceptical about the decision to expand the Fed Balance Sheet and view it as QE, though it clearly is not. Indeed by focussing on buying T-Bills the Fed should actually help to a) anchor shot-term rates, and b) more importantly be able to mitigate some of the unneeded disruptions to liquidity that the sharp fluctuations in the Treasury's Cash balance at the Fed due to debt ceiling shenanigans, and c) given the sharp rise in US govt borrowing, which has been heavily skewed to T-Bills, relieve some of the pressure on primary dealers' positions. It will nevertheless still need to institute some form of standing repo facility, which goes beyond the current open market operations. The UK FPC minutes will be primarily scrutinized for any Brexit related comments, though some attention will also to be paid to any comments about commercial and residential real estate lending, given incremental signs of stress in the property sector. Last but not least, there is the updated IMF Global Economic Outlook, which as we know from yesterday's press conference with Georgieva will see a cut in forecasts for most countries; previously world economy had been forecast to expand 3.2% y/y in 2019 and 3.5% y/y in 2020. Georgieva added "we expect slower growth in nearly 90 percent of the world. The global economy is now in a synchronized slowdown, ... and global trade growth has come to a near standstill." The latter is certainly a rear view mirror exercise, as is usual, and certainly more than well discounted in G10 rate expectations and bond yields, but may still prompt some reaction.

========================== ** THE DAY AHEAD ** ===========================


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