Non-Farm speculation masks a possible policy change
Yes, Yes, we know. Like parents being woken by eager children on Christmas morning, the market is reeling from the excitement of traders desperately wanting to open their “big present”
The big present in question is the U.S. non-farm payroll report. This remains the single most important piece of data that determines monetary policy. At least that is what traders believe and therefore excites them the most.
Central banker’s new mantra is “it’s all about trend” as it probably always has been. So, one piece of data is unlikely to bring about a rate hike. But let’s not allow the facts to cloud a good story!
In fact, in relation to the employment report, the headline is not as important, medium term, as two seemingly less significant part of the report: The revision to the previous month and the change in hourly earnings.
This is a complicated report which combines fact and estimate. It is therefore prone to revisions. On any number of occasions, revisions exceeding 20% have been seen. Janet Yellen doesn’t seem to be a lady who gets too excited. But even she gets a little animated over the hourly earnings data. This has been the single fly in the ointment holding back a far more hawkish path for monetary policy.
Intervention? Really?
A little reported comment by an administration spokesman said that misalignment not manipulation is the main culprit for the incorrect valuation of currencies.
So, at a stroke, President Trump shifts blame for individual countries like China, Japan and Germany (I had to throw them into given Trumps all too hilarious comments) having currencies that are weaker than (he says) they should be to the FX Market.
It’s manipulation Jim, but not as we know it!
Apparently, currencies no longer float freely driven by a list of influences that have existed since the withdrawal of the gold standard.
It would also appear that this is a call for central bank intervention (everyone’s favourite market driver). Trump’s plan could be get currencies in line with what we (Americans) want by intervening, and carry on intervening to keep them artificially anchored.
So, at one sweep on the executive pen, the entire seven trillion dollar FX market becomes redundant as a driver of value.
Not gonna happen, Don.
Currency markets exist as the most important global market, most driven by diverse events. The lack of regulation is what gives it such a varied existence.
Global ERM? A field day for the investors (speculators). Central banks spending fortunes to peg a currency artificially? Please tackle significant issues Mr. Trump. You have plenty to choose from.
The Syrian Civil War has taken on a more serious tone with the bombing by the U.S. of a Government controlled airfield from where, it is alleged, a chemical attack on civilians took place earlier in the week. This will bring Russia and America into direct conflict and an escalation is in no one’s interest.
A response from Russia is eagerly awaited.
As if to back up my earlier comment, every global event influences currencies. Traders bought the JPY which has appreciated by 1.5% against a dollar, which is facing several headwinds, this week.
By contrast, the pound and euro remain in tight ranges just waiting for Brexit or the French election of spark them into life!