The currency that everyone is watching is Japanese yen (JPY) and yet the one that maybe most noisy overall is the British pound (GBP) with its C/A, politics, BOE decision and technical picture all flashing yellow, writes Bob Savage Monday.
Some sets of letters strike fear in traders – BBB used to be one of them back in the crisis days of 2008. Credit mattered then, and the BBB ratings were illiquid and effectively become junk – forget that pesky letter C.
This meant AAA was supposed to save you, but it didn’t and thus the fear factor.
Today, markets are worried about a different set of BBB – BoJ, Brexit and By-elections (read as U.S. mid-terms but extending to politics in general) and markets return to watching C as it stands for China and the ongoing weakness of the Chinese yuan (CNY) and talk of an RRR cut again to spur growth.
Defining what is fear and what is junk may be the order of business for August and not the month-end flows today and tomorrow as markets wait for the wisdom of central bankers.
• BOJ: Focus on rates remains global as many news sources suggest that the BOJ could adjust monetary policy tomorrow, through an ETF purchase tweak, the removal of pre-announcements on the Rinban, and perhaps even a change to the Yield Curve Control (YCC) levels.
• Brexit: The UK Times reports that Britain has privately conceded that EU judges will be legal arbiter of disputes over payments to Brussels and the residency rights of more than three million European citizens. PM May is facing a backlash from grassroot conservatives, while the Cabinet has drawn up a “fallback” option to the Chequers plan according to the Telegraph. For the first time since the vote in 2016, more people in the UK support a second referendum than not – 42% to 40%.
• By-Elections in Australia: Little market reaction to the latest round of by-elections in Australia over the weekend with the ruling coalition losing badly to Labor – it’s a humbling result for PM Turnbull according to the press. All of this puts today as a warm-up for the central bank and larger economic data points due ahead. This is the overload week for macro news and its unlikely to be easy with volatility and liquidity at odds with each other as Summer vacation looks more dangerous.
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