E Blind Spots

We all have blind spots, things that we can’t see, but know maybe set to derail out best laid plans. Today brought so much economic data that the world of investors are likely to ignore it all despite the surprises of better French GDP, better Japan retail sales, better German confidence. There was plenty of weaker stories to offset all this – with the EU Commission Economic Sentiment clearly hitting home the idea that Europe is suffering a significant slowdown. The FOMC decision today tops the focus for investors but plenty of other economic and political headlines make clear that trading in this environment has more blind spots than clear vision. Let’s start with the non-economic news flows:  

  • UK Brexit votes yesterday drives GBP lower now flat. What changed with the amendments?  – most analysts suggest nothing. The risk for a no-deal exit from the EU remains in play (Goldman lifts the odds from 10% to 15%), hope for EU talks on the Irish border issue seems misplaced.  
  • Japan Cabinet sees fiscal surplus in 2026. This is better than the 2027 from last year, and part of the forecasts released today with 1.3% GDP for FY2019 – even with the VAT tax plans intact. The budget of $900bn is a new record high. Also markets worried about the new 10-day Golden Week announcement April 27-May 6 will be the longest break ever for shares and bonds as they celebrate Crown Prince Naruhito becoming emperor. Closing a market for nearly 2 weeks puts bonds and stock liquidity at risk.
  • US/China talks restart today with CNY bid - The hope for talks on trade leading to a deal drives the CNY to 6-month highs today even as Huawei CFO extradition requests typify the intellectual property problem
  • Apple earnings provided global relief for equities with MSCI all-country World up 0.1%. The firm didn’t report further bad news after its revenue warning linked to US/China trade fears hit markets earlier this month. CEO Cook noted US/China trade tensions have eased. 
  • Turkey central bank vows to keep “right” policy. The central bank governor Cetinkaya said that inflation was expected to be 14.6% at the end of 2019, a figure revised down from the previous forecast of 15.2%. He cited lower global oil prices, weaker domestic demand and the stronger currency after last year’s meltdown in the lira for the downward revision.

With all of the focus on GBP and the US/China trade has left the FOMC a bit of a window to do little and wait for more data and geopolitical news.  Whether that patience is supported by the market now matters to the USD.  Many are more bullish the EUR but struggle to see the ECB or growth there driving it more than old-fashioned equity and bond buying flows driving it.  The CNY move to key 6.71-6.73 support is another factor and the link to China growth continues to dominate. So the focus today is likely on how the USD handles the Fed doing nothing with all the blind spots at play about growth, confidence and the rest of the world.

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