View from London: Yen Reflects Latest Loss of Confidence

07/24/2017 2:55 am EST

Focus: CURRENCIES

Robert Savage

Partner & CEO, CCTrack Solutions

The markets have overpriced the risk of the ECB moving quickly and underpriced the risks of Fed hikes and even from the BOE, writes Bob Savage, CEO of Track Research in Monday commentary from London.

Mooch can mean many things–either a facial hair style–or something that is always asking for things and not really doing much in return.

Markets are asking a lot from central bankers and not giving back much credibility to them–just ask Mario Draghi and perhaps Janet Yellen later this week.

The weekend in the U.S. was about the new White House communication director Anthony Scaramucci and how he will attack the president’s lower approval ratings, attempt to reignite interest in his agenda and corral Congress to pass something before the end of the year.

The drop in confidence about the reform agenda has been showing up in both consumer and business surveys. The PMI Index reports ahead will be viewed in that context.

Many see growth as a game of getting business excited about the future so that they spend money on it. Others are a bit more cynical, expecting the consumer to borrow the money to spend and see the role of central banks as controllers of that leverage.

Neither view makes the mood for this Monday better and the job of the “Mooch” as the press has taken to calling the new Trump cabinet member will be that much more difficult. The battles in geopolitics are clear with Europe at odds with the new Russian sanctions, Syria policy reversals and more doubts about global trade.

Image isn’t the same as substance. The world is watching growth and leverage and fearing both.

The coordinated global recovery in 2017 is intact but has some potholes–the most dangerous being the complacency of investors–as financial conditions are suggesting that the FOMC may need to surprise and do more not less.

The markets have overpriced the risk of the ECB moving fast and underpriced the risks of Fed hikes and even something from the BOE.

August is likely to be that much more difficult. The risk-on and off mood may be changing a bit and the barometer that moved the most overnight is Japanese yen (JPY/USD) where the Abe confidence game is unwinding fast.

The flash PMI there also missed like that of Europe and the mood is clearly one where JPY 108 is likely before 118–what a difference a month can make.

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