The Bank of Japan disappointed last night as East Coast traders had to wait for the longest time since 2016 for Kuroda to do practically nothing, creating an unwind of last week’s anxiety-driven spike in bond yields.
Former fund manager and FX trader, Richard Breslow, was among the disappointed as he exclaimed “why are they all trying to crush my high hopes,” adding that he really hopes this isn’t one of those weeks where we get tons of information thrown at us and learn nothing new. Or, more importantly, that nothing is new.
I’ve been accused this morning of having an unrealistic reaction by being disappointed, nay annoyed, with the policy steps the BOJ chose not to take. We can dress up the wider flexibility of the yield-curve control policy, but it is really mostly just more of the same. With the tweaks they introduced really designed just to make the central bank’s job easier. For them.
All that talk about the negative externalities to the financial sector that we’ve talked so much about recently went right out the door as the official inflation forecasts were once again lowered. Not to mention the ongoing fixation with the planned consumption tax hike and its potential to drag on the economy. And that isn’t even scheduled for over a year. It all doesn’t really scream, “Run out and buy Japanese bank stocks.”
Meanwhile, the Italian government took time out from being a thorn in the side of their European brethren to make nice in Washington. In a rare cynical moment, I couldn’t help but muse that it’s possible that the two sides not only agree on immigration policy but really are most simpatico with a lack of concern for budget deficits and increased borrowing. As we eagerly await the Italian budget negotiations, it doesn’t feel like a coincidence that EUR/CHF is trading on a 1.15 handle.
On a lighter note, ask anyone which currency has spent July running roughshod over the competition. Give them three guesses and be very impressed if they come up with the Mexican peso.
Despite the political news, the domestic crime difficulties, the wall fight, it has been a killer to be short. The ongoing NAFTA negotiations have apparently been sprinkling pixie dust on Mexican assets across the board.
Banxico meets later this week. More rate hikes are priced into the market even if most, but certainly not all, economists in the Bloomberg survey think they will take a pass this time around. Given recent developments, it’s hard to think the inflation outlook hasn’t moderated and the curve in need of repricing.
U.S. equities have been wobbling over the last week or so. The Mexican Bolsa is just looking on sympathetically. Is it any wonder that the Canadians want in on the party, as the TSX has been making lower highs and lower lows? Or inexplicable that we’ll talk to just about anyone without preconditions except for our bestie up north?
The BOE is likely to raise rates. But doing so just to give room to cut in future may be prudent but is hardly inspiring. Every time you see some good numbers, check out the latest in the Brexit negotiations. I have a mansion in Knightsbridge I’m willing to sell you.
So after all that, we might just have to wait around to see how upbeat the post-meeting Fed statement is and if the non-farm payrolls report confirms what we already know. That’s, bleakly, just back to business as usual.
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Author: Tyler Durden