Data Watching

April 30th, 2015 5:37 am | by John Jansen |

Via Kit Juckes at SocGen


UK and US GDP growth disappointed in Q1, but didn’t change the nature of the policy debate. Paul Krugman (in the Guardian) and Martin Wolf (in the FT) both argue for more fiscal stimulus on the grounds that you’d be mad not to take advantage of such low borrowing costs. The rate debate is between those who think that economies with falling unemployment and nominal GPP growth of almost 4% y/y don’t need rates this low, and those who would see any rise at all as a dangerous application of the policy brake. Rates are lower than they should be, but they don’t need to go up until there’s either acceleration in growth, or some signs somewhere that inflation is heading higher. The FOMC Statement made enough reference to the weather to leave a view of a September rate hike intact but we’re back to data-watching.

Nominal GDP growth compared…


The US GDP data and the savage correction in bond markets that was going on at the same time, saw equity markets weaken for much of the day yesterday, a trend which has carried over into Asia. That stopped the bounce in AUD, CAD and NZD, the last of these pushed back by the RBNZ, who sounded dovish enough for markets to bring forward pricing of a rate cut. That also got AUD/NZD back up. And BOJ inaction left the yen stronger as the Nikkei fell.

If you want to trade for spring-like US data, today’s personal income and consumption figures will confirm that there is fuel for growth in the form of rising real incomes, but jobless claims and the Chicago PMI won’t set the market on fire. Next week’s ISM and employment data that will attract more interest. I remain long-0term bearish of AUD again, a rising CRB index the one thing which makes me wary. Otherwise, shorting GBP/USD looks a better risk-reward trade than shorting EUR/USD as we enter the last week before the UK election next Thursday.

Itching to short AUD/USD when rate correction is done


Today’s data round has already seen a jump in Spanish GDP to +0.9% q/q and we should see Eurozone CPI exit no-flation and move back to 0.1% headline, 0.7% core y/y while unemployment falls to 10.3%. Falling unemployment in Germany, higher inflation across the region will support the Euro and if we’re data-watcing (rather than clutchign at straws) then EUR/USD bearish will only be a function of US news, not European news. There is even hope expressed in the press of positive developments this weekend in Greek debt talks. All of which suggests we trade EUR/USD in a 1.1050-1.12 range for now. Short EUR/SEK and EUR/NOK, are better ways to trade the economic uptick. PLN and HUF will get a lfit from the European data too and while yesterday’s focus was on the rise in yields in G10 markets, CEEMEA bonds are reversing a huge rally pretty quickly –  a trend that can go a lot further if anyone has doubts about the whole disinflation theme….

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