E No Doves

If you prove you aren’t a hawk, that doesn’t make you a dove. This is the logical biconditional problem for central bankers. Today was about the RBNZ and Riksbank not being dovish and so assumed to be hawkish. NZD and SEK rally accordingly. FX extends its role from flow gauge to confidence barometer.  There is a difference between keeping accommodative policy steady rather than doing more extraordinary actions to bolster markets and economies. We live in a world where expectations have become part of the policy process with forward guidance seen as a useful tool even when present uncertainty makes such calls suspect. Rates can indeed go up and down, tracking the risks for inflation, growth, and unemployment. Overnight, the hope from a US/China trade deal continued as did the hope for the US avoiding another government shutdown.  These offset some of the uglier economic stories – like Korea joblessness reaching back to 2000 levels, like Japan PPI dropping back to Jan 2017 lows, like UK PPI and CPI showing more deflationary impulses and like the Eurozone industrial production being even worse than expected. The urge to do something about clearly weaker global growth inputs wasn’t sufficient to sway the RBNZ and Riksbank today and that is what matters. Central bankers are indifferent to market moods and expectations. They are biconditional with their views and only as good as their tools. Then there is the role of politics as the power of monetary policy finds its limits under the fiscal constraints of government. The biggest overnight story maybe in Spain where the PM seems likely to announce a snap election as the 2019 budget proposal gets rejected by parliament. GBP remains mired with May’s Brexit deal or a long delay, gleefully ignoring CPI at 2-year lows. The Belgian national strike reminds many investors that Europe faces more difficult issues as pay demands rise even as growth stutters. The NZD spike today is the barometer to watch as it is in stark contrast to the moves for AUD last week after the RBA sounded distinctly dovish rather than neutral. The role of FX in reflecting bigger issues is very much in play today with the NZD trying to return to the January highs.  Whether this happens or not maybe more a reflection on the rest of the world and its mood for running risks for a return to normalization, where the FOMC Powell put becomes a collar and where the S&P500 isn’t set for 2800 but 2600.

Question for the DayIs there both a supply and demand problem in oil? The IEA report today follows the OPEC yesterday. The global oil market will struggle this year to absorb fast-growing crude supply from outside OPEC, even with the group’s production cuts and US sanctions on Venezuela and Iran. The IEA left its demand growth forecast for 2019 unchanged from its last report in January at 1.4 million barrels per day. “It is supported by lower prices and the start-up of petrochemical projects in China and the US. Slowing economic growth will, however, limit any upside,” the agency said. The IEA raised its estimate of growth in crude supply from outside the Organization of the Petroleum Exporting Countries to 1.8mn bpd in 2019, from 1.6mn bpd previously, while OPEC crude was cut to 30.7mn bpd down from 31.6m bpd.

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