The only chart that seems to be on an obvious trend against the USD today is Chinese yuan (CNY) and (CNH) – and perhaps that is the only candy we need for trading now. CNY weakens 3.1% in July, extending its four-month decline to 8.2%, writes Bob Savage Tuesday.
Where I grew up there was a general store in the middle of town that sold penny candy. This was the place to go in summer when you found a quarter under the sofa and had nothing else to do but sweat.
Money in hand, biking madly, thinking of gum stoppers and ending up with a bag full of sugar filled with joy.
The BOJ decision today is a lot like that for investors, a decision filled with empty calories leaving markets joyful they didn’t act further, but now waiting for a sugar crash. Tweaking, it’s called, like the day when prices of favorite candies went to 2 cents and the best to a nickel but there still was some penny candy and sometimes free when the store owner needed to get rid of it or throw it away.
So, BOJ Kuroda sees a wider range for 10-year yields in Japan from 20bps around zero to 40bps around zero. Net result was a rush for risk assets with U.S. dollar (USD) lower in EM, stocks higher and bonds rallying.
The ride home from the store always had a stomach-ache, hills were harder to climb – so too today for EU bonds as Eurozone inflation is higher and growth lower.
There was so much economic news overnight that the BOJ/Eurozone GDP/CPI headlines are more hills than peaks for risk – as German retail sales missed bounce hopes, jobs were good but not enough, China PMI missed, New Zealand business outlook hits a 10-year low, and Japan jobs and industrial production both miss.
Growth lower, inflation higher isn’t a good mix for longer term risk taking in a world where central banks play with pricing penny candy. Of course, this economic data doesn’t drown out the ongoing geopolitical noise either – call that the eight-track tape of the candy store with Trump thinking about a $100 billion unilateral tax cut, with the White House prepared to end Iranian sanctions if Iran behavior changes and with Canada’s bid to be part of US/Mexico NAFTA talks rejected.
In the UK, PM May is warning her party of a “humble address” – leaving the risk for early elections open and adding to Labor government fears for markets.
Put all that together into the FOMC and BOE meetings along with more earnings and more heavy economic data and you get volatility.
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