E Piggly Wiggly

The first self-service grocery started in 1916 in Memphis, TN. Its called Piggly-Wiggly and that push for innovation, profits and growth is a good place to start today, as markets celebrate another quiet session with the start of the Lunar New Year of the Pig, the appetite for risk rises. Selling volatility, buying equities, giving up on JPY and Gold as place-holders – all that shows up on the trading tape. What hasn’t maybe more important – rates are treading water – as central bankers do their best to remain neutral or even pullback normalization talk. The RBA meeting today brought out “downside risks” from the global economy. The BOE, RBI, and others ahead will likely to the same. The weakness in Australia looks notable given a big drop in imports, weak retail sales, and a sharp drop in the Service PMI. The gains in the A$ overnight and the rally up in equities maybe less sustainable than those looking for the RBA to give in to another easing should things get worse. The same logic flows over to Europe where Italy and France are the weakest links to any growth. The Service PMI stories highlight the troubles in Europe and make it hard to believe in the EUR to 1.20 instead of 1.10. The political pressures in both the US and Europe are rising with the drop in growth and demand. This puts the race to the bottom back into the thinking of FX with JPY, EUR, and USD all playing for last place. The EUR seems to be in the best position for a 1.13 test and break unless something happens tonight with Trump and the State of the Union. While we maybe celebrating the post Superbowl, start of Chinese New Year, the Piggly- wiggly moment of truth has yet to be seen in valuations, rates or risk. 

Question for the Day: Does the US Senior Loan Officer survey suggest the FOMC is too tight? The demand for mortgages fell notably as did demand for auto loans. The willingness of banks to lend also dropped. The interest rate sensitive parts of the economy are showing the effects of 9 Fed hikes. The dinner between Trump and Powell clearly had some crow on the plate. There is something to consider in the latest Fed Senior Loan Officer survey that suggests trouble to remain in the US 1Q growth beyond government shut-downs and US trade policy issues.  

What Happened?

  • Australia January CBA final Services PMI 51 from 52.7 – same as flash – weakest since May 2016. The composite PMI slips to 51.3 from 52.9 – weaker than 51.5 expected. Demand at home slowed while foreign held, but overall new work weighed on activity. 

  • Australia January AIG Services PMI 44.3 from 52.1 – much weaker than 51 expected. The trend for PSI fell 0.7 to 49.3. Weakness came from retail trade -5.2 to 39.9, wholesale trade -1.3 to 43.3, with hospitality -0.7 to 55.1 and health/education -1.8 to 51.7. Overall, new orders fell 12.6 to 45.4, but employment rose 2 to 47.5 with wages -7.4 to 55.2. 
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