Tim riset berpengalaman kami bekerja sepanjang waktu untuk menyajikan informasi finansial terpenting guna memperluas pengetahuan trading Anda. Baca laporan khusus kami untuk mendapatkan pengetahuan mendalam tentang berbagai instrumen finansial penting dan pergerakan pasar yang menarik.
Persiapkan diri Anda dengan informasi penting yang berguna untuk membangun rencana trading terbaik dalam perjalanan Anda meraih kesuksesan bersama PRIMUS MARKET.
Bank-Bank Sentral Tentukan Arah Kebijakan 2018
Tidak banyak agenda dalam kalender ekonomi, sehingga fokus pasar hari ini akan tertuju pada sejumlah rapat Bank Sentral pekan ini yang akan menentukan arah di tahun 2018. Penyesuaian kebijakan moneter dan keputusan suku bunga terakhir tahun 2017 akan dimulai pada hari Rabu pukul 19:00 GMT, dimulai dengan rapat FOMC dan diikuti dengan keputusan ECB dan BoE di hari Kamis.
Fed Akan Tingkatkan Suku Bunga, Rabu, 13 Desember
Pada hari Rabu, pasar menantikan pengumuman suku bunga Fed terakhir dari Janet Yellen karena ia akan digantikan oleh Jerome Powell di bulan Februari sebagai Ketua Dewan Gubernur Fed. Pasar juga memperkirakan, dengan konsensus 92%, bahwa suku bunga akan ditingkatkan 25 bps menjadi 1.50%. Laporan NFP terakhir melampaui estimasi lapangan kerja baru, namun rata-rata upah per jam lebih rendah dari perkiraan dan inflasi inti melambat di level 2.0% YoY sehingga tampaknya ekonomi AS siap menghadapi kenaikan suku bunga lagi. Grafik di bawah menunjukkan bahwa Rata-Rata Upah per Jam Riil melemah lebih rendah dari inflasi. Ini mengindikasikan bahwa belanja konsumen berpotensi meningkat, sehingga keputusan Fed untuk meningkatkan suku bunga guna mengendalikan inflasi mungkin diambil di waktu yang tepat.
Meninjau para pengambil kebijakan meningkatkan prospek Pertumbuhan PDB 2017 dalam Rangkuman Proyeksi Ekonomi terkini di bulan November dan juga September, sebagian besar analis setuju bahwa Fed terlalu optimis memandang ekonomi AS dan inversi imbal hasil 2018 semakin berisiko terjadi.
BoE Pertahankan Suku Bunga, Kamis, 14 Desember
Seperti diperkirakan dalam laporan khusus keputusan suku bunga BoE kami sebelumnya, para anggota MPC meningkatkan suku bunga sebesar 25 bps menjadi 0.5%. Saat ini BoE diperkirakan tidak akan meningkatkan suku bunga dalam waktu dekat dan pasar memprediksi setidaknya dua kenaikan suku bunga lagi yang akan dilaksanakan bertahap selama 3 tahun mendatang.
Inflasi saat ini jauh di atas target 2.0% yaitu di level 3.0% dan lebih tinggi dari rata-rata jangka panjang yaitu 1.80%, kenaikan suku bunga saat ini mungkin sesuai untuk mengatasi inflasi, namun pertumbuhan ekonomi yang kurang bergairah mungkin menghambat kenaikan suku bunga sekarang ini. Grafik di bawah menampilkan hubungan antara ledakan perubahan inflasi dan pertumbuhan ekonomi yang sepertinya bergerak dengan laju sangat lambat.
Perlu diingat pula bahwa kinerja ekonomi Inggris Raya sangat bergantung pada perkembangan negosiasi Brexit antara Inggris dan Dewan Eropa. Terlepas dari kesepakatan Jumat lalu (voting belum dilaksanakan, negosiasi fase dua sepertinya juga akan menghadapi ganjalan.
ECB Pertahankan Suku Bunga Mendekati Nol, Kamis, 14 Desember
EUR tergelincir 0.60% pekan lalu , namun pada basis bulanan EUR menguat 1.14% terhadap USD. ECB tidak tergesa-gesa untuk meningkatkan suku bunga kali dan mempertahankan posisi ekspansi karena inflasi masih berada di kisaran 1.0%. ECB semakin mengupayakan normalisasi walaupun juga masih memberi akomodasi substansial. ECB menekan pembelian aset menjadi 60 miliar per bulan dan setuju untuk memangkas separuhnya mulai 2018.
Divergensi kebijakan moneter antara Eropa dan AS semakin besar dan mungkin akan terus meluas setelah kenaikan suku bunga Fed di bulan Desember karena keputusan FOMC untuk mengurangi akomodasi moneter sebanyak dua kali, dan bahkan mungkin tiga kali, di tahun 2017.
Dengan harapan bahwa aktivitas ekonomi akan tetap membaik dan inflasi umum meningkat, ECB sepertinya mengambil arah yang benar dengan mengurangi stimulus moneter lebih cepat dari diduga dan memperkirakan kenaikan 2 bps di tahun 2018. Rapat kebijakan kali ini mungkin akan menyampaikan prospek ekonomi Eropa hingga 2020 dan memberi isyarat mengenai divergensi kebijakan moneter di masa mendatang.
FX Market Specialist.
Segala opini, berita, riset, analisis, harga, atau informasi lainnya yang dimuat di sini disediakan sebagai komentar pasar secara umum dan tidak boleh dianggap sebagai saran investasi. FXPRIMUS tidak bertanggung jawab atas kerugian atau kehilangan apa pun, termasuk namun tidak terbatas pada hilangnya profit, yang disebabkan oleh penggunaan atau kepercayaan terhadap informasi tersebut secara langsung maupun tak langsung.
Keputusan Cash Rate RBA, Kamis 7 November
Tidak ada perubahan suku bunga Cash Rate RBA pada pernyataan kebijakan moneter yang dikeluarkan pada 4 Oktober. Ini adalah keputusan ke-14 berturut-turut yang tidak mengubah suku bunga RBA di level 1.50%. Situasi ekonomi yang memengaruhi keputusan RBA diketahui satu hari setelahnya. Data menunjukkan bahwa harga hunian di Sydney merosot setelah periode 17 bulan. Median harga rumah turun nyaris 4.0% di wilayah tersebut, sementara harga di kota-kota utama lainnya meningkat walau hanya sedikit.
Grafik menunjukkan bahwa situasi kredit semakin ketat dan laju pertumbuhan kredit properti terhadap PDB kini lebih cepat dibanding pertumbuhan pendapatan nasional bruto.
Tidak ada kenaikan cash rate resmi sejak November 2010 dan pertumbuhan kredit investasi serta akselerasi pasar perumahan jelas meningkat karena pemangkasan cash rate di masa lampau, maka prediksi pakar bahwa tidak ada perubahan di bulan November sepertinya akan menjadi kenyataan. Ekonom memprediksi (estimasi 73%) bahwa kenaikan suku bunga akan terjadi dalam 6 bulan mendatang, terutama karena pertumbuhan pasar tenaga kerja dan keadaan ekonomi. Upah sepertinya juga akan meningkat.
Pertumbuhan upah tetap berada pada level yang rendah, begitu pula inflasi, walaupun Dolar Australia menguat karena Dolar AS melemah. Kenaikan kurs AUD dapat semakin menekan ekonomi karena harga meningkat dan ekspor menurun, namun tetap pada level yang cukup tinggi tanpa ada dampak langsung terhadap ekspor ke negara OECD (kecuali penurunan di Januari 2017).
Pandangan RBA tetap positif terhadap pertumbuhan dan meyakini bahwa ekonomi akan terus membaik di 2018 dan suku bunga sangat mungkin ditingkatkan di tahun itu.
FX Market Specialist.
This special report is provided as general market commentary and does not constitute investment advice.
Data penduduk bekerja di bulan September menghasilkan reaksi pasar yang agak berbeda, bukan sekadar USD yang lebih lemah. Para ekonom memperkirakan pertumbuhan lapangan kerja sebesar 80K. USD kemudian meningkat di atas level resistance penting 113.00 vs JPY, namun ternyata lapangan kerja justru berkurang ~40K.
Lapangan kerja AS berkurang 95K (kemudian direvisi menjadi ~41K) pada September 2010, dan ini adalah rekor 7 tahun. Kegelisahan peserta pasar tentang angka umum ini segera dihapus oleh tingkat pengangguran yang mencapai level terendah 16 tahun dan revisi naik terhadap NFP Agustus serta kenaikan Rata-rata Upah per Jam yang meningkat ke level tertinggi sejak Februari 2016.
Pertumbuhan upah meningkat, anggaran untuk tahun fiskal 2018 disetujui, dan imbal hasil obligasi AS melonjak di atas 2.33% sehingga ekonom meyakini bahwa NFP Oktober dapat memperkuat kurs USD.
Laporan September menampilkan peningkatan utamanya dari sektor kesehatan, transportasi dan pergudangan, serta jasa bisnis dan profesional. Sementara itu, lapangan kerja di bidang pangan dan jasa merosot paling besar (-105K) karena bencana badai serta banyaknya karyawan yang dirumahkan.
Walaupun badai memberi sedikit pengaruh pada pengumpulan data di sebagian besar area di bulan September dibandingkan Agustus, kesalahan pemrosesan pada estimasi karyawan wanita dan karyawan produksi dan non-pengawasan di lima industri yang lebih kecil juga ditemukan.
Perubahan NFP AS berada di level saat ini sebesar -33K, turun dari 169K bulan lalu, dan turun dari 249K satu tahun lalu. Persentase perubahan ini adalah sebesar -119.5% dari bulan lalu dan -113.3% dari satu tahun lalu. Alasan utama mengapa data yang lebih rendah dari ekspektasi ini segera dimengerti adalah:
- Pertumbuhan upah naik dari 0.2% menjadi 0.5% sedangkan ekonom memperkirakan pertumbuhan 0.3%.
- Tingkat pengangguran turun ke level terendah 16 tahun yaitu menjadi 4.2%
- Tingkat partisipasi juga naik ke 63.1%
- Penduduk bekerja bulan Agustus direvisi dari 156K menjadi 169K
- Data Pengurangan Lapangan Kerja dari Challenger turun 4.4%
Sekarang mari kita bahas lima poin penting tersebut...
- Pertumbuhan upah naik dari 0.2% menjadi 0.5%: Rata-rata upah per jam naik 0.5%, bukan seperti konsensus estimasi 0.3%. Ini lebih tinggi signifikan dibandingkan ekspektasi dan target inflasi Fed 2.0%. Rata-rata upah per jam AS saat ini berada di level 26.55. Median upah per minggu untuk pekerja penuh waktu adalah $859 di kuartal ketiga 2017. Angka ini lebih tinggi 3.9% dibandingkan satu tahun lalu.
- Tingkat pengangguran turun ke level terendah 16 tahun: Tingkat pengangguran turun ke 4.2% yang merupakan level terendah 16 tahun, namun laju inflasi meningkat 2.2% YoY di bulan September, di bawah konsensus yaitu 2.3%. Inflasi AS berada di level 2.23% dibandingkan 1.94% tahun lalu. Sementara itu, tingkat pengangguran AS berada di level 4.20% dibandingkan 4.40% tahun lalu. Menurut BLS, tidak ada efek signifikan dari Badai Irma dan Badai Harvey terhadap tingkat pengangguran nasional.
- Tingkat Partisipasi naik ke 63.1%: Tingkat Partisipasi Angkatan Kerja AS meningkat ke 63.10% dibandingkan 62.90% bulan lalu. Ini mendukung penurunan tingkat pengangguran sehingga kenaikan ini merefleksikan kuatnya pasar tenaga kerja.
- NFP Agustus direvisi: Walaupun NFP September negatif, USD menguat karena revisi naik terhadap data Agustus dari 156K menjadi 169K dan kenaikan rata-rata upah per jam. Deflasi adalah salah satu kekhawatiran utama saat ini sehingga pertumbuhan upah serta revisi ini menjadi alasan bagi investor untuk membeli USD.
- Data Pengurangan Lapangan Kerja dari Challenger turun 4.4%: Laporan Challenger saat ini berada di level 32.346, lebih rendah dibandingkan level bulan lalu yaitu 33.825. Total kuartal ketiga kali ini adalah yang terendah sejak kuartal ketiga 1996.
Indikator Penting Terkait Laporan Tenaga Kerja Mendatang
- Aktual, Divergensi Konsensus, dan Divergensi Rata-Rata
- Klaim Pengangguran (rata-rata 4 minggu) dan apakah mendukung data pengangguran
- Laporan Manufaktur ISM
- Laporan Pengurangan Lapangan Kerja
- PDB dan Sentimen Konsumen (revisi)
- Indeks Harga PCE Inti
- Belanja Personal
- Keyakinan Konsumen CB
- Laporan Tenaga Kerja ADP
Pernyataan Suku Bunga Bank of Canada, Rabu, 25 Oktober
Bank of Canada meningkatkan suku bunga sebesar 25 basis poin pada 6 September setelah sebelumnya meningkatkan suku bunga sebesar 25 basis poin pada 12 Juli. Langkah ini membuat CAD menguat 82 sen vs USD karena para ekonom memperkirakan kenaikan suku bunga lagi pada agenda ekonomi 25 Oktober mendatang, bukan secepat di bulan Juli. BoC meningkatkan suku bunga dari 0.5% menjadi 0.75% pada bulan Juli untuk pertama kalinya dalam 7 tahun terakhir, dan mencetak sejarah dengan meningkatkannya lagi menjadi 1.0% di bulan September.
Percepatan laju pertumbuhan ekonomi Kanada sebesar 4.5% YoY di Q2 dan kinerja ekonomi terbaik di G7 ini didukung oleh ekspansi terutama dalam ekspor dan sektor energi. Walaupun sebagian analis menganggap kenaikan suku bunga kedua ini termasuk agresif, dan namun data menggembirakan dan posisi kebijakan BoC sepertinya cukup menstimulasi. Inflasi memang berada di bawah target 2.0% tapi saat ini sedikit membaik.
Inflasi Kanada berada di level 1.43% dibandingkan 1.13% tahun lalu. Ini lebih rendah dari rata-rata jangka panjang 3.89% dan lebih rendah dari ekspektasi 1.50%. Inflasi memang naik, perubahan PDB Riil juga naik sekitar 20bp dibandingkan 0.90% kuartal lalu dan -0.30% tahun lalu, lebih tinggi dari rata-rata jangka panjang yaitu 0.59%.
Meninjau pasar properti hunian mulai melambat karena tingkat utang yang tinggi, perubahan kebijakan perpajakan dan kebijakan perumahan, dan IHK yang meningkat 0.2% di bulan Agustus, kebijakan BoC pada 25 Oktober akan bergantung pada pandangan yang positif pada pertumbuhan dan kinerja Dolar Kanada. Walau demikian, keadaan pasar tenaga kerja, potensi ekonomi, dan apakah ekonomi dapat menerima kenaikan suku bunga lagi tahun ini mengisyaratkan bahwa level stimulus saat ini mungkin sudah yang paling sesuai untuk sekarang.
Minimum Bid Rate ECB, Kamis, 26 Oktober
Euro menguat sekitar 12.25% sejak Januari terhadap Dolar AS, antara lain karena ketidakpastian fiskal dan politik AS namun terutama karena pertumbuhan selama dua kuartal berturut-turut di Eropa dan peningkatan pasca krisis yang dialami PDB menjadi 2.3% YoY pada Q2 2017. PDB Riil meningkat 0.6% di kuartal yang sama dan Laju Pertumbuhan Tahunan PDB Uni Eropa meningkat berturut-turut selama 14 bulan terakhir. ECB mengatakan bahwa inflasi diprediksi menurun di jangka pendek karena apresiasi nilai tukar Euro sebelum kembali meningkat ke 1.5%, namun ini juga dipengaruhi oleh kapan ECB memutuskan untuk mengurangi pembelian aset bulanannya. Posisi ECB dan reli Euro mengurangi peluang kenaikan suku bunga tahun ini.
Selama Januari 2015 hingga sekarang, ECB mempertahankan kebijakan suku bunga nol dan walaupun ini tidak berarti ECB siap untuk meningkatkan suku bunga karena ekspansi ekonomi yang berkelanjutan, ini menjadi sinyal bahwa pengurangan suku bunga ultra rendah dan pengurangan pembelian obligasi bulanan mungkin akan segera dilaksanakan. Reuters telah menerbitkan survei yang mendukung bahwa ECB mungkin akan mengumumkan pengurangan pembelian obligasi bulanan dalam konferensi pers bulan Oktober.
Dalam Pernyataan Pembuka Konferensi Pers terbarunya, Gubernur ECB Mario Draghi mengatakan bahwa pembelian aset bersih "direncanakan untuk berlanjut hingga akhir Desember 2017, atau lebih lama lagi, jika diperlukan" dan hingga kemajuan yang berkelanjutan menuju target inflasi dapat tercapai. Draghi menambahkan bahwa "inflasi akan secara bertahap bergerak ke level yang sesuai dengan target inflasi ECB" dan ini menjadi informasi yang disambut investor. Posisi kebijakan moneter akomodatif dapat menjadi sinyal kenaikan suku bunga yang telah dinantikan.
Inflasi harga konsumen (HICP) berada di level 1.50% di bulan Agustus, sama dengan bulan lalu, dan 0.40% tahun lalu. Ini lebih rendah dari rata-rata jangka panjang yaitu 1.68%. Agar ECB dapat mempertahankan stabilitas, tingkat inflasi HICP harus berada di kisaran 2.0% di jangka menengah. Proyeksi makroekonomi ECB untuk Zona Euro memperkirakan depresiasi menuju 1.20%, seperti yang diindikasikan oleh Draghi, pada akhir tahun ini atau awal 2018 dengan merefleksikan harga futures minyak saat ini dan efek harga energi dan komoditas.
Kebijakan Suku Bunga Bank of Japan, Selasa, 31 Oktober
Dalam pengumuman kebijakan terbaru di tanggal 20 Juli, BoJ tidak mengubah suku bunga dan tampaknya kemenangan telak PM Abe dalam pemilu Jepang pekan lalu membuka jalan menuju kebijakan moneter ultra longgar yang berkelanjutan. Ekonomi Jepang tumbuh 0.6% QoQ namun inflasi masih terus lebih rendah dari target luar biasanya yaitu 2.0% dan bahkan masih jauh dari ekspektasi 1.0%.
Pada saat ini, BoJ telah memundurkan proyeksi waktu pencapaian target inflasi untuk yang keenam kalinya. Pertumbuhan PBD Jepang di bulan Juni adalah yang terkuat sejak Q1 2015 karena keputusan BoJ untuk meluncurkan kerangka kerja kebijakan di bulan Februari 2016. Kerangka kerja ini memberlakukan suku bunga jangka pendek negatif di level -0.1% dan imbal hasil obligasi 10 tahun mendekati 0.0%. Sejak saat itu, suku bunga obligasi negara 10 tahun Jepang (JGB) telah merosot dari 0.45% ke 0.07% saat ini dan inflasi tergelincir dari 2.60% di Februari 2015 menjadi 0.5% di Agustus 2017 yang merupakan level tertinggi 29 bulan.
Dengan kemenangan Abe, BoJ sepertinya akan mempertahankan kebijakan ultra longgar dan meneruskan imbal hasil negatif. Dengan demikian, modal Jepang akan mencari imbal hasil yang lebih tinggi di luar negeri, namun Jepang dan investasi Jepang di negara asing akan membantu mempertahankan suku bunga global sementara Jepang mungkin akan dapat bertahan sebagai sumber ekspor modal.
Di bulan September, ekspor Jepang meningkat 14.1%, meski lebih rendah dari ekspektasi yaitu 14.9%. Ini adalah peningkatan ekspor untuk yang ke-10 kali berturut-turut, terutama karena ekspor mobil. Penerimaan hasil ekspor mungkin akan memungkinkan Abe untuk mengadakan reformasi pajak konsumsi dalam waktu dekat dan menstimulasi belanja negara. Karena itu, belanja konsumen dan pertumbuhan ekonomi dapat mengalami ekspansi namun mungkin dengan mengorbankan Yen karena imbal hasil masih negatif dan pelonggaran moneter tetap agresif.
Dengan keyakinan konsumen yang berada di bawah rata-rata jangka panjang 42.14 sejak Agustus 2015 dan rasio utang negara terhadap PDB yang tertinggi sepanjang masa yaitu 250.40 dengan proyeksi mencapai 251.70% di 2021, Yen sepertinya tetap akan tertekan di jangka pendek dan menengah. Itu dengan asumsi tidak ada tekanan geopolitik.
Abe Diprediksi Menang Besar di Pemilu Jepang
Perdana Menteri Shinzo Abe mengumumkan pemilu cepat pada 25 September, mengambil kesempatan dari oposisi yang lemah dan tidak erat, sementara tingkat penerimaan terhadap dirinya terus meningkat mendekati 44% karena sikap tegas yang beliau ambil terhadap Korea Utara.
Walaupun oposisi yaitu Partai Demokrat (DP) telah mengganti ketuanya dari Murata menjadi Maehara, tingkat penerimaan terhadap oposisi tidak membaik sehingga DP dileburkan dan menciptakan pesaing yang lebih besar lagi untuk Abe, Partai Harapan Yuriko Koike. Beruntung bagi Abe, lawan baru ini tidak bisa bertahan lama dalam "kompetisi" karena Koike memutuskan untuk tidak bertanding di parlemen demi meneruskan tanggung jawabnya sebagai Gubernur. Karena itu, Partai Demokrat Liberal (LDP) Abe dan mitranya Komeito dapat memperkuat proyeksi hasil suara koalisi petahana mencapai lebih dari 300 kursi.
LDP diperkirakan mendapat 280 kursi sementara Koike mendapat 57 kursi, lebih banyak dari 40 kursi yang diperkirakan didapat oleh Partai Demokrat Konstitusional (CDP) dan 21 kursi untuk Partai Komunis Jepang.
Potensi Konsekuensi Ekonomi dari Pemilu Cepat
Walaupun keputusan Abe untuk mengadakan pemilu cepat berawal dari tujuan untuk menjawab ketegangan dengan Korea Utara, alasan penting lainnya bagi Abe adalah untuk mengukur persetujuan konstituen mengenai rencana kenaikan pajak konsumsi yang ia jadwalkan di bulan Oktober. Rencana Abe adalah menginvestasikan 40% dari hasil tambahan pajak untuk belanja, pendidikan, dan layanan kesehatan selain pensiun, dengan total investasi mencapai 2 triliun Yen. Rencana Pemerintah untuk 5 triliun Yen sisanya dari hasil yang diharapkan dari proposal skema pajak baru ini adalah untuk konsolidasi fiskal sebesar 4 triliun Yen dan perbaikan sistem jaminan sosial sebesar 1 triliun Yen. Rencana Abe adalah untuk menggunakan 2 triliun Yen. Karena itu, pemerintah mungkin harus menangguhkan target surplus neraca primer pada tahun fiskal 2020; potensi alasan reflasi fiskal.
Perhatikan pula bahwa kenaikan pajak konsumsi terakhir berhasil mengakhiri deflasi, namun perubahan arah dari BoJ dapat menyebabkan reli USD/JPY.
Tantangan dan Permasalahan Abe
Di saat Abe bersiap menyongsong kemenangan, konstituen masih tetap khawatir mengenai konsekuensi kenaikan pajak konsumsi terhadap ekonomi dan kehidupan masyarakat. Kebijakan Abe kemungkinan akan dilaksanakan oleh penerusnya, dengan asumsi ia digantikan oleh pemimpin partai lain, namun sektor perawatan anak dan layanan keperawatan tidak cukup besar untuk memberi dampak signifikan apabila rencana paket stimulus ini segera disetujui.
Rencana Abe untuk mengalihkan dana untuk belanja jaminan sosial kemungkinan besar akan memperpanjang lini waktu pengembalian utang negara yang membengkak, dan ini mungkin menggembirakan bagi investor karena Abe dikenal investor akan belanja publik yang agresif, pelonggaran moneter, dan Yen yang lemah. Di saat yang sama, agenda Koike termasuk menghapus belanja publik yang agresif dan pelonggaran moneter, dan dengan peningkatan popularitasnya, pihak anti-Abe telah muncul.
Selain masalah ekonomi dan politik, krisis Korea Utara adalah tantangan terbesar bagi Abe dan Jepang. Ketegangan antara Jepang dan Korea Utara telah mencapai titik didih dengan ancaman peluncuran misil Korea Utara sehubungan dengan kampanye Abe, Abe mengumumkan proposal amandemen Konstitusi dan memberi legitimasi penuh pada angkatan bersenjata Jepang untuk bersiap menghadapi risiko keamanan nasional.
Abe menginginkan mandat dan untuk mengimplementasikan sanksi resmi terhadap Korea Utara, langkah yang didukung oleh Presiden AS Donald Trump, karena masalah nuklir ini memperburuk situasi geopolitik. Pemimpin oposisi baik Koike maupun Shii menginginkan dialog, bukan tekanan.
Merkel Diprediksi Menjadi Kanselir Untuk Periode ke-4
Survei menunjukkan bahwa Partai Demokrat Kristen (CDU) Angela Merkel memimpin pemilu Jerman 16% lebih unggul dari Partai Demokrat Sosial (SPD) Martin Schulz setelah Schulz "kalah" dalam debat TV. Sementara itu, polisi Jerman menghadapi peningkatan kejahatan terkait pemilu terhadap Partai Alternatif Jerman (AfD). Survei menunjukkan bahwa AfD akan mendapat suara di kisaran 10% karena partai ini menarik lebih banyak pendukung yang anti-ekstremis dan anti-nasionalis, sama dengan hasil survei opini untuk Die Linke, sementara FDP dan Grune mendapatkan 9.5% dan 8.2%.
Potensi Koalisi dan Representasi Partai
Walaupun CDU Merkel berpotensi memenangi pemilu dan mayoritas kursi di Bundestag, Merkel harus membentuk koalisi dengan partai lainnya, seperti sebelumnya dengan Bavarian Sister (CSU) karena kemungkinan kekurangan suara tetap tinggi. Survei mengatakan bahwa Koalisi Besar -pemerintah saat ini- akan bermain. Pertanyaannya adalah apakah CDU dan CSU akan bergabung dengan FDP jika perlu, atau membentuk "Koalisi Jamaika" bersama partai Hijau? Opsi lainnya adalah pemerintahan CDU-FDP karena ini akan melampaui target batas untuk mencapai mayoritas. Satu-satunya risiko untuk Merkel adalah koalisi SPD-Kiri-Hijau dipimpin oleh Martin Schulz.
Dalam sistem Bundestag saat ini yang terdiri dari 631 kursi, CDU dan CSU menduduki 309 kursi, SPD 193 kursi, Die Linke 64 kursi, dan Partai Hijau 63 kursi.
Sebagian besar gejolak politik 2017, ketegangan geopolitik di Korea Utara, dan bangkitnya Mata Uang Digital dewasa ini memberi kesejahteraan dan stabilitas ekonomi di Zona Euro sementara Dolar melemah. Walaupun Macron dan Merkel bersepakat untuk menata Uni Eropa dan mempertahankan Euro, tanpa finalisasi detail caranya, investor meyakini bahwa peluang untuk menormalkan kekurangan uni moneter dan mereformasi Zona Euro cukup besar. Dengan Merkel memimpin Jerman, stabilitas dan kesejahteraan diyakini akan berlanjut bukan hanya di Jerman seperti yang diharapkan rakyat, namun juga di Eropa, dan sentimen investor diarahkan untuk lebih bullish terhadap Zona Euro.
Akselerasi tekanan ekonomi Jerman masih berlangsung. Isu utama yang dihadapi oleh koalisi saat ini dan mendatang adalah imigrasi, ketidaksetaraan ekonomi, dan gender. Menurut Reuters, populasi imigran telah mencapai rekor level tertinggi baru dengan gelombang imigran dari Timur Tengah dan Afrika. Lebih dari satu juta imigran diizinkan masuk ke Jerman pasca keputusan Merkel untuk membuka perbatasan, salah satu alasan mengapa popularitas AfD meningkat. Data pemerintah menunjukkan bahwa lebih banyak perempuan yang bekerja dalam keadaan yang lebih buruk dari laki-laki dan mendapat upah empat kali lebih rendah dari laki-laki sehingga ketidaksetaraan gender dan ekonomi semakin meningkat. Selain itu, ketidaksetaraan gender meningkat karena redistribusi penghasilan yang tidak efektif dan perubahan struktural di pasar tenaga kerja. Merkel dan Koalisi baru dituntut untuk menghasilkan solusi atas peningkatan ketidaksetaraan gender dan ekonomi.
Laporan Khusus NFP Agustus
Laporan yang lebih penting dari biasanya telah dirilis pada 4 Agustus di saat keraguan terhadap kenaikan suku bunga AS semakin tinggi dalam situasi inflasi yang melambat. Dengan upaya Fed untuk mengurangi neraca $4,5 triliun, data tenaga kerja bulan Juli sangat menentukan untuk bank sentral ini dan juga investor.
Data NFP (tenaga kerja non pertanian) sangat positif. Konsensus ekspektasi adalah peningkatan perubahan lapangan kerja sebesar 183K, dan ternyata data aktual mengatakan bahwa peningkatan lapangan kerja mencapai 209K. Tingkat pengangguran tidak banyak berubah menjadi 4,3% dan Total Tenaga Kerja Non-Pertanian meningkat dari 146,41 juta menjadi 146,62 juta yang berarti pertumbuhan bulanan sebesar 1,71%.
Laporan aktual menunjukkan peningkatan paling besar di sektor Hiburan dan Perhotelan (+62K), Pendidikan dan Jasa Kesehatan (+54K), dan Jasa Profesional dan Bisnis (+49K). Sementara itu, sektor Manufaktur (+16K), Aktivitas Keuangan (+6K), Perdagangan Besar (+6K), Konstruksi (+6K), dan Pemerintahan (+4K) mengalami peningkatan yang relatif lebih rendah. Tabel berikut menampilkan Perubahan Tenaga Kerja menurut Industri:
Perubahan NFP AS berada di level saat ini sebesar 209K, turun dari 231K bulan lalu, dan turun dari 291K satu tahun lalu. Persentase perubahan ini adalah sebesar -9,52% dari bulan lalu dan -28,18% dari satu tahun lalu. Walaupun jumlah penduduk bekerja mencapai level tertinggi baru sebesar 153,5 juta, upah tetap tidak berubah. Kita perlu memperhatikan data dan peristiwa berikut untuk laporan tenaga kerja berikutnya:
1. Tingkat Pengangguran turun dari 4,4% menjadi 4,3%.
2. Tingkat Partisipasi naik dari 60,1% menjadi 60,2%
3. Pertumbuhan lapangan kerja ADP lebih rendah dari ekspektasi 187K menjadi 178K sementara laporan BLS mencatat peningkatan dari 182K menjadi 209K
4. Euro mencapai level tertinggi baru dalam 2 ½ tahun terhadap Dolar setelah Simposium Jackson Hole pekan lalu
Sekarang mari kita kupas lima poin penting tersebut...
1. Tingkat pengangguran yang lebih rendah: Walaupun tingkat pengangguran yang sedikit menurun ke 4,3%, terendah sejak Mei 2001 yang juga tercapai di bulan Juli, sebagian besar penambahan lapangan kerja terjadi di sektor berpendapatan rendah dan pada pekerjaan dengan basis paruh waktu. Pekerjaan paruh waktu naik 349K sementara pekerjaan penuh waktu turun 54K.
Tenaga kerja ini, yang lebih mengharapkan bekerja penuh waktu jika bisa, bekerja paruh waktu karena jam kerja mereka dikurangi atau karena tidak berhasil menemukan pekerjaan penuh waktu. Jadi, penurunan tingkat pengangguran berarti semakin banyak orang yang bekerja namun jam kerja mereka jauh lebih sedikit dan penghasilan mereka pun lebih rendah, sehingga tingkat partisipasi pun meningkat. Perhatikan bahwa rata-rata jam bekerja per minggu tidak berubah yaitu 34,5 jam per minggu.
2. Kenaikan tingkat partisipasi: Tingkat partisipasi tidak banyak berubah dalam basis bulanan namun meningkat 0,4% poin persentase sepanjang tahun. Tenaga kerja marginal tercatat sebesar 1,6 juta orang, lebih rendah 321K dibandingkan satu tahun sebelumnya. Pekerja putus asa, sub-bagian dari angkatan kerja marginal yang beranggapan bahwa tidak ada lapangan kerja yang tersedia untuk mereka, tercatat sebesar 536K sementara penduduk bekerja meningkat 345K.
3. Pertumbuhan lapangan kerja ADP Juni sebesar 178K, lebih rendah dari ekspektasi 187K: Laporan ADP mengisyaratkan potensi laporan lapangan kerja yang melampaui ekspektasi karena peningkatan 9K memperkuat prospek laporan NFP yang positif, namun ini mungkin tidak terjadi karena selama periode 12 bulan terakhir, rata-rata pertumbuhan lapangan kerja swasta ADP tercatat di atas 200K. Ini adalah estimasi pertama yang diperkirakan di bawah 200K, dan NFP menunjukkan hasil yang luar biasa. Kepercayaan investor terhadap laporan ADP semakin berkurang karena perbedaan antara ADP dan BLS semakin besar. Laporan Juni juga direvisi dari 222K menjadi 231K, namun laporan Mei direvisi menjadi lebih rendah dari 153K menjadi 145K.
4. Batas maksimum utang (debt ceiling) melejitkan Euro: Walaupun Yellen dan Draghi mengecewakan investor Jumat lalu karena tidak membahas kebijakan moneter, Euro berhasil melampaui level tertinggi terakhir dengan resistance teknikal 1.1913. Kekhawatiran tentang batas maksimum utang dan badai Harvey serta potensi melemahnya ekonomi AS membuat pasangan mata uang ini mencapai level tertinggi sejak Januari 2015. Pergerakan ini terjadi pasca konsolidasi 3 minggu dan mungkin menjadi awal dari reli Euro berikutnya. Grafik bulanan berikut memberi penjelasan lebih lanjut.
Jangan lupa bahwa kenaikan tajam terjadi terhadap banyak pasangan mata uang, dengan dampak yang lebih rendah dibandingkan kenaikan EURUSD karena volatilitas yang lebih rendah. Contohnya, peluang mungkin muncul untuk USDJPY, USDCHF, Emas, dan sebagainya, tentu saja bergantung pada selera risiko Anda. Selain itu, harga biasanya kembali ke level normal pada akhirnya, jadi investor mungkin mencoba mengambil untung dari pasar begitu pasar mulai stabil.
Segala opini, berita, riset, analisis, harga atau informasi lain yang termuat dalam email ini atau yang ditautkan dari email ini disediakan sebagai komentar pasar umum dan bukan merupakan saran investasi. FXPRIMUS tidak bertanggung jawab atas segala kehilangan atau kerugian, termasuk namun tidak terbatas pada, hilangnya keuntungan, yang mungkin timbul secara langsung atau tidak langsung dari penggunaan atau kepercayaan terhadap informasi tersebut.
I’d like to discuss my general expectations for what’s likely to happen in the FX markets this year. Much depends on how the Trump presidency and the Chinese economy work out. In general, I expect the dollar to continue to gain and for the yen and pound to weaken further.
We’ve seen the dollar soar after the presidential election as market participants expect the incoming Trump administration to cut taxes and boost infrastructure spending. Alas, those expectations ignore the way the US government actually works: the president submits a budget but Congress has to pass it. The Republican Party has been willing to pass tax cuts but is generally less enthusiastic about increased spending. In fact, the current plan among Congressional Republicans is to shrink the government’s budget, not expand it. The gap between what Trump is looking for and what Congress is planning currently totals many trillions of dollars. The wrangling over US fiscal policy is likely to be the main risk to the dollar in 2017.
Nevertheless, I still expect the dollar to strengthen further. There’s likely to be some fiscal boost, if not everything that Trump hopes for. Moreover, in December the Fed boosted its interest rate forecasts without even assuming a more expansive fiscal policy. Thus the monetary policy divergence that’s kept the dollar rising for several years now is likely to continue into 2017, albeit with perhaps more volatility as US politics weighs on the outlook.
The outlook for the yen is to a large degree the mirror image of that for the dollar. Not only has the Bank of Japan pushed short-term rates into negative territory, but it’s also capped long-term 10-year rates at zero. So even if rising US Treasury yields exert an upward pull on long rates elsewhere in the world, they won’t have the same impact on Japan. The widening yield gap between Japan and the rest of the world should keep the yen on a depreciating trend during 2016. On top of that, the Trump administration’s focus on countries that run significant trade surpluses with the US is likely to be to Japan’s detriment, as it runs the fourth-largest surplus of any single country.
The outlook for the euro is particularly clouded. I expect the currency to be weak in the beginning of the year as the market worries about political risk. Elections in the Netherlands in March and France in April and May are likely to keep the specter of euro disintegration haunting the market. In addition, the Italian banking crisis is another centrifugal force for the currency union to deal with.
However, I expect the elections to pass without much lasting impact and the pro-EU establishment parties to continue to govern. In particular, I don’t expect the National Front to come to power in France. That should mean less political tension in the Eurozone after May, just in time for people to start worrying about Britain again.
After plunging in the wake of the Brexit vote, the pound has had a respite recently as the British economy has proven more resilient than the pundits expected. Moreover, Britain has benefited through the contrast with Europe: the challenges Britain faces are now well known, while the impact of politics on Europe is more difficult to assess. That’s caused some selling of EUR/GBP. But by the late spring, concerns about European politics should be waning just as the wrangling between Britain and the EU over Brexit begins in earnest. At that point, the full impact of this historic move is likely to hit the markets and the pound is likely to suffer another leg down, in my view.
The commodity currencies: AUD, NZD, CAD
The outlook for AUD and NZD is tied to China, and the outlook for China isn’t that great, in my humble opinion. The Chinese government has been using every monetary and fiscal technique in the book to boost growth, but 2017 is likely to be the year that the book ends and the economy has to face reality. Moreover, Trump’s plans for revamping the global trade system are aimed squarely at China, which will compound an already difficult situation.
AUD is likely to be the main victim of slower Chinese growth. China takes 32% of the country’s exports and developing Asia overall takes 48%. A slowdown in China’s growth, particularly in its property sector, will hit Australia’s commodity exports. Moreover, the global supply of iron ore is set to increase (and the price fall) as new mines in other countries start producing.
NZD is less vulnerable to a Chinese slowdown than AUD is. China only takes 18% of the country’s exports (Australia takes 17%, the US takes 12%) and most of those exports are agricultural products, not building materials. If the economy slows, people might not buy a new house but they will still have to eat. Moreover, milk prices have been rising recently, in contrast to iron ore & coal.
CAD is vulnerable to a downturn in oil prices, but the correlation seems to be waning recently. On the other hand, unlike AUD, Canada is leveraged to an accelerating economy: 73% of Canadian exports go to the US, which I expect will continue to enjoy fairly robust growth in 2017. And the Trump administration has said that they don’t have a problem with Canada’s trade patterns, so NAFTA renegotiation is not a significant threat. If the USD continues to rally because of a strong US economy, Canada should be a major beneficiary. That ought to help the CAD outperform the other commodity currencies.
The Bank of Japan (BoJ) today surprised the markets with yet another tweak of their monetary policy. As expected, it focused on the shape of the Japanese Government Bond (JGB) yield curve, but it contained enough new and unexpected aspects to provide several surprises.
First, a short history of BoJ policy. They introduced “Quantitative and Qualitative Monetary Easing”, or QQE, in April 2013. When that didn’t work, they introduced “QQE with Negative Interest Rates” in January of this year. Now that they see negative interest rates actually harm the economy, they’ve switched to “QQE with Yield Curve Control.”
There are two major components of this new program:
Yield curve control: At the short end of the yield curve, BoJ has kept the benchmark rate for part of bank reserves unchanged at -0.1%.
At the long end, will target 10-year Japanese Govt Bond (JGB) yields at around current levels of 0%. They’ll buy bonds if yields start to move up, or they will lend money for up to 10 years at a fixed rate if yields start to move much lower. I’ve never heard of anything like that before. Their longest operations up to now were 1 year. The ECB’s long-term refinancing operations are 3 years.
Anchoring the 10-year yield at 0% has two effects. First off, they’re guaranteeing that if the banks (or anyone else) buy 10-year bonds at this level, they won’t lose money. Secondly, by preventing 10-year yields from going below zero, the yields of longer-term bonds should stay positive. That will help the profitability of insurance companies and pension funds, which need longer-term assets to match their long-term liabilities.
In any case, cutting the interest rate on bank reserves further into negative territory would have hurt bank profits, so this is better than the alternative, as far as the banks are concerned.
- Inflation-overshooting commitment: This is even more radical, in my view. Before, they were pledging to get inflation back up to 2% by a certain time. They never met that target, so they just kept pushing it out further and further. Now they’ve scrapped the target date and instead pledged to keep expand the monetary base until inflation is stable above the 2% target. In other words, they’ve committed to overshoot their inflation target. This is the only central bank in the world (that I know of) that has taken such a radical step.
They also said they will cut interest rates further if necessary
The moves seem aimed at reducing the harmful side effects from the negative rate policy, which was hurting bank profitability and could make them less willing to lend
Japanese stocks rose as banks & insurers are seen as benefiting from the moves. That’s the white line in this graph. USD/JPY, the yellow line, moved up almost in lockstep with the stock market. That seems to have been the path by which the BoJ’s moves affected the currency market.
But the graph shows, once the Tokyo stock market closed, the yen began strengthening again. That’s because these moves won’t directly impact the currency. It’s an indirect impact: by making banks and insurance companies more profitable, they won’t need to hedge their overseas investments so much and they may be more willing to take risks. But on the other hand, by making Japanese bonds more attractive, the BoJ could be discouraging them from investing abroad. So the impact on the currency isn’t that clear.
Meanwhile, the JGB yield curve steepened somewhat as 10-year yields, which had been below zero, moved up to around zero %. Rates at the longer end moved up as well, which may have been as much the BoJ’s intention as anything else.
All told, I believe that the BoJ’s pledge to keep policy loose not only until they achieve their inflation target but until they overshoot their target on a sustainable level is the most radical thing I’ve heard from a central bank. I think in the long term, that should work to weaken the yen, because it promises that they will just keep trying and trying. But in the short term, I’d say a lot depends on what the Fed decides tonight.
Today I’d like to discuss what impact the dramatic and largely unexpected Brexit vote will have on the world. But before I do, I’d like to discuss an event that happened almost 20 years ago: the Russian bond market default. The connection may not be immediately relevant, but I think it explains a good deal of why we are now entering into one of the most dangerous periods I’ve seen for the markets.
You may remember that Russia defaulted on its bonds back in 1998. At that time, one of the favorite investments for hedge fund was to borrow money in the low-interest-rate yen and invest it in high-yielding Russian bonds. When the Russian bond market collapsed and their assets suddenly plunged in value, all these hedge funds rushed to close out their positions and repay their liabilities. The result was an enormous rally in the yen – up something like 4 yen a day every day for a week.
The reason the Brexit vote reminded me of that event was this: it was completely understandable in retrospect, but completely unforeseen in advance. I don’t remember anyone warning that a collapse in Russian bonds would affect Japan. Yet it did, very much so. Now that we know why it did, we can see the cause and effect and we feel that we should have been able to forecast it. But certainly nobody did at the time.
Now we are hearing a lot of predictions and forecasts for what will happen after Brexit. That’s only natural; we all have to make plans for the future, and so we all want to have an idea of what the future is going to be like. Unfortunately, it’s inherently unknowable. The one thing we can be certain about the future is that it’s unlikely to be the way anyone imagined. As Daniel Kahneman said in Thinking, Fast and Slow (a book that every investor should read – twice),
…our tendency to construct and believe coherent narratives of the past makes it difficult for us to accept the limits of our forecasting ability. Everything makes sense in hindsight…And we cannot suppress the powerful intuition that what makes sense in hindsight today was predictable yesterday. The illusion that we understand the past fosters overconfidence in our ability to predict the future.i
I’d like to list some of the effects we’ve already seen from the Brexit vote. The disintegration of the Conservative Party leadership might have been foreseeable, even though PM Cameron had pledged ahead of time not to resign, but the Labour Party too? Boris Johnson out of the running for PM? Perhaps the gating of the UK commercial property funds was foreseeable, but who predicted that Brexit would accelerate the collapse of Italian banks? (I’m not even sure what the connection there is myself – it seems to be based on the expectation that the ECB will have to keep rates lower for longer, and that’s a particularly difficult environment for the troubled Italian banks.)
In fact, one of the consequences of the vote so far seems to be the absolute reverse of what everyone predicted. Most pundits – myself included, again – expected Brexit to be the first domino in a chain that would see voters in at least France and the Netherlands pushing for their own referendum. But so far the impact seems to be the exact opposite: voters in Spain strengthened the pro-European center-right party, while polls in Denmark, Finland and Sweden have shown increased support for staying in the EU. Perhaps people are seeing the problems that the UK is suddenly confronting by voting to leave and re-evaluating whether it’s worth it. Could it be that the ultimate impact of the Brexit vote could be greater Eurozone integration? Perhaps the Italian banking crisis will be the impetus. Seems hard to imagine, but not impossible.
The impact isn’t just in Europe. For example, during the recent FOMC meeting, participants said they thought it would be “prudent” to wait for the result of the referendum “in order to assess the consequences of the vote for global financial market conditions and the U.S. economic outlook.” Now that they know the result, how much longer will they wait? Brexit has sent the yen up sharply and thereby destabilized Japanese markets. Investment decisions on hold globally, economic activity lower, oil prices fall…what will be the impact on the Middle East?
In short, the implications of this event for investments are both global and unknowable. Money is flowing out of Britain (or it would, if the property funds would allow redemptions); where will it go to? If people sell their Belgravia flat, will they buy one in Vancouver instead? If they bail out of gilts, will we see the US long bond trade with a 1-handle, and US mortgage rates fall further? Will my house in Phoenix increase in value because of discontent in Sunderland?
Nonetheless, we have to make decisions based on our incomplete knowledge. Even doing nothing, even keeping our money in cash, is a decision. Cash in which currency?
We know that uncertainty has increased and that it’s likely to last some time. In that context, the typical trades in the FX market are to buy dollars; buy the safe-haven JPY and CHF; and sell the main currency affected, GBP. High-beta currencies such as AUD and SEK are also likely to be hit. Of course, these currencies have already moved a considerable amount. But just because they are cheap or expensive doesn’t mean they can’t get cheaper or more expensive.
The best plan at such times is to remember the wise words of Howard Marks, of Oaktree Capital: “You can’t predict. You can prepare.”
Fed and SNB lower their real interest rate forecasts: are we all turning Japanese?
Four major central bank meetings in 24 hours and no change in policy at any of them. The Chinese philosopher Lao Tzu summed it up when he said, “By doing nothing, everything is done.”
Yet as spectators at a soccer match well know, no score doesn’t mean no action. What emerged from two of these meetings was the conclusion that real interest rates – interest rates minus the rate of inflation -- would stay lower for longer than expected.
In the US, the FOMC lowered its forecast for end-2018 interest rates by around 50 bps to 2.46% on average from 2.95% (2.38% from 3.00%, using the median). Yet the forecast for inflation was left unchanged for both 2017 and 2018. That means lower real interest rates. The Swiss National Bank reached the same place but from the other direction. It kept its rates the same while predicting a slightly higher inflation rate – make that, less deflation – for 2016 and a slightly higher inflation rate for 2017. That too means lower real rates.
What was particularly significant for the Fed was the change in their forecast for the longer-run level of the Fed funds rate. Their median forecast for that fell 25 bps in March and another 25 bps this time as well. That’s a huge move, considering that this is their forecast for the long-run equilibrium level of rates – the rate over several economic cycles. It’s particularly significant given that there was no change in their forecast for the long-run rate of growth or inflation. They are now saying that for a given growth and inflation combination, interest rates will probably be lower than they were before. Note that their forecast of a future long-run Fed funds rate of 3% is only slightly more than half the actual long-run average, which is 5.73% (from 1954 to end-2007).
The Fed’s downgrade of this longer-term rate coincides with an important break in the market’s expectations for inflation. Until recently, the market’s inflation expectations were closely correlated with the current price of oil. But in late April, the two started to diverge significantly, with inflation expectations headed lower even while oil prices headed higher. Perhaps the market thinks that higher oil prices are only temporary (as do I); perhaps they see energy prices having less impact on inflation over time. Whichever, this change in inflation expectations is worrisome for the Fed, as Chair Yellen admitted: “we can’t take the stability of longer-run inflation expectations for granted,” she said at the press conference.
Note that this is also the week that 10-year German Bund yields went negative, suggesting that in Europe too, investors see little prospect of inflation any time soon. (Rates of course are also affected by the presence of a major non-profit-seeking buyer, namely the ECB.) We haven’t quite reached that point in either the US or the UK, however.
Is Japan’s experience a harbinger of things to come? There, overnight rates have been 50 bps or less since 1995, yet inflation has only exceeded 1% when the government raised the consumption tax. It could be that we are going to see global conversion to the Japanese norm, at least among the advanced economies.
What does this mean for currencies? In the near term, probably a weaker dollar as the “monetary policy divergence theme” fades even further from view. It is bullish for emerging market currencies as the reduced likelihood of any Fed tightening improves the outlook for those economies. It improves the outlook for carry trades; within the G10, that means NZD and AUD, the currencies with the highest interest rates, may benefit, while in EM, RUB, TRY and ZAR have the highest rates.
I would recommend caution with carry trades right now and also with EM currencies in general. That’s because these trades don’t perform well when during a risk-off environment, and next Thursday is the Brexit vote – which could turn out to be a serious, serious risk-off event.
Speaking of which, the statement following the Bank of England meeting today laid out the Monetary Policy Committee’s expectations for what would happen to sterling if the country votes to leave the EU. “On the evidence of the recent behaviour of the foreign exchange market, it appears increasingly likely that, were the UK to vote to leave the EU, sterling’s exchange rate would fall further, perhaps sharply,” the MPC predicted. “This would be consistent with changes to the fundamentals underpinning the exchange rate, including worsening terms of trade, lower productivity, and higher risk premia.” Note that by saying the fall would be “consistent with changes to the fundamentals,” they are in effect ruling out intervening in the FX market to counter any such decline. We could see some major volatility if the country votes Leave.
Oil prices likely to remain volatile
Oil prices were collapsing earlier this year, but they’ve since rebounded nearly 60% from their February lows. Is the price going to keep rising?
Personally, I don’t think so. I think the price is likely to fall back down towards the recent lows, although probably not that low again.
But in any case, I expect the oil price to remain quite volatile as economics, technology, geopolitics and finance combine to provide an unstable supply and demand picture for crude.
Behind the recent rally has been a remarkable turnaround in speculative positions. So far this year, hedge funds and other investors have more than doubled their net long position in oil futures and options. It’s now approaching the record set in June 2014, when it looked like ISIS fighters might take over Iraq.
As you can see, not only were investors accumulating long positions, but they also closed out over half of the record short positions that they held. It was this short-covering really that pushed oil prices up.
The question is, what will cause investors to continue to close out these short positions or to buy more contracts? This is where it gets difficult.
True, there has been some decline in global production. That’s because of several disruptions to supply, such as malfunctions at a Venezuelan export terminal and a pipeline bombing in Nigeria. And there’s been some hope that OPEC and the major non-OPEC countries would agree at their meeting in Doha on April 17th to at least freeze production, if not cut it back.
At the same time, demand out of China and India has been strong, with both countries importing near record amounts of crude and products in February.
But there’s one big problem overhanging the market: the global inventory overhang. The whole world could stop pumping oil for a week and that would only bring inventories back to their normal level. And we all know that’s just not going to happen. On the contrary, the US Government’s Energy Information Administration expects that global inventories will continue to rise this year and even next year.
Aside from supply and demand, there’s another factor coming into play: the refinancing of America’s shale oil producers. As I mentioned, the oil market is the intersection of economics, technology, geopolitics and finance. Economics determines the demand for oil. Technology increases oil companies’ ability to find and develop oil reserves. Geopolitics can interrupt oil supplies, as it is now in Nigeria, or increase supplies, like with Iran.
The impact of finance is a bit less obvious. It’s most important with the US shale oil companies, which depend on bank loans for finance. Banks reset oil companies’ credit facilities twice a year. They determine how much the companies can borrow based on the value of the companies’ oil reserves. If the price of oil is high, the banks lend them more money; if the price is low, the banks cut back their loans. Many of these agreements are coming up for renewal in April. If oil prices fall further, then much of the US shale oil production may be shut down, causing a big spike up in prices. And if the loans get rolled over, then production can continue unabated, which might push prices down.
So there’s a lot that might move the price of oil in the near future: speculative positioning, the Doha meeting, Asian demand, US shale oil refinancing…The direction of prices isn’t clear by any means.
But what is clear is that the volatility of oil is likely to remain high as these many cross-currents intersect to push the price around. That’s why I think oil is an attractive market for investors looking for volatility.
What to expect from the upcoming central bank meetings: ECB, BoJ, Fed
Webinar held on 3 March on www.fxstreet.com The recording can be accessed at: http://www.fxstreet.com/webinars/sessions/what-to-expect-from-the-upcoming-central-bank-meetings-ecb-boj-fed-20160303/
Hello everyone! This is Marshall Gittler, head of investment research here at FXPRIMUS.
Today I’m going to be discussing the upcoming central bank meetings We’ve got three biggies in the next two weeks: the ECB on the 10th (Thursday), the Bank of Japan on the 15th (next Tuesday), and Fed on the 16th. In addition, the Bank of Canada and RBNZ both meet on Wednesday, March 9th (Thursday in NZ). There’s also going to be a Bank of England meeting on March 17th, but that is likely to have relatively little market impact now that all the Monetary Policy Committee members are voting the same way.
So there’s going to be a lot of central bank activity in the near future. And as we all know, the markets are being totally dominated by the central banks nowadays.
So what can we expect from these meetings? Well, let’s first see what the general world conditions are.
The main things to notice are:
- Growth in most countries is stagnant at best, slowing at worst
- EM countries in particular are slowing sharply
- Global trade is falling
- Inflation is still well below target almost everywhere
- Financial markets are volatile (although not as volatile as they were back in January)
I’d like to take the fourth point, sluggish inflation. It’s true that inflation has picked up in many countries, but it’s still well below the central bank’s official target in most of them. We can see here that in the US, it’s moving back towards target, but the EU and Japan are nearly in deflation! So it’s hard to see how those two are going to hit their targets without further action. That’s why I think we might see further action from some central banks.
But…how do lower interest rates help an economy? In theory, they should boost lending. But you can see here that bank lending hasn’t picked up very much outside the US even though interest rates are at record low levels. That’s because companies don’t borrow just because money is cheap, they borrow it because they think they can invest that money profitably. Why should they bother building a new factory if they don’t think they can make money with it? This is the other problem that central banks face: lowering interest rates hasn’t worked in one of the main ways it’s supposed to.
So if lowering interest rates doesn’t encourage borrowing, what does it to? It weakens the exchange rate. That’s one way that central banks can help their economies out. But of course a country’s exchange rate will fall only if other countries don’t lower their rates too. If everyone lowers their interest rates, then relative interest rates remain the same and nobody wins – they just wind up in the same situation but with everyone worse off.
Furthermore, negative interest rates have started to have the opposite effect. You can see here in this graph of bank stocks relative to their home markets how bank stocks have underperformed the overall stock market recently. That’s because investors worry about negative interest rates eating into banks’ profits. That might force them to charge more for loans! So it may be that the interest rates tool is no longer as effective as it was.
Now let’s discuss the central bank meetings in the order in which they’ll occur:
The ECB is the one where expectations are the highest. At their last meeting, ECB President Draghi gave a big hint that they would increase their market assistance. He said that Eurozone inflation dynamics were weaker than expected that it may be “necessary to review and possibly reconsider our monetary policy stance at our next meeting in early March, when the new staff macroeconomic projections become available which will also cover the year 2018.”
The point about the ECB staff’s economic forecasts is quite significant. The forecasts that they have now only go out to 2017. At their next meeting, the staff will make forecasts out to 2018. These are really important for the ECB. As you can see, the ECB is forecasting that growth will recover and that inflation will move back towards the target over the next two years. But if they revise down their inflation forecast for this year and next and forecast that it’ll take three years to get back to their target, they’ll have to take some further action.
As you can see in the graplh below, inflation expectations – the blue line – haven’t been affected at all by the ECB’s actions, and instead have basically followed the oil price, the yellow line. And in fact recently inflation expectations have continued to fall even as oil prices have stabilized. So with oil remaining at extremely low levels, the ECB has to do something lest a deflationary mindset get established.
Now, we all know that they can’t really do anything. For example, the Bank of Japan has kept its short-term rates at 50 bps or less for the last 20 years, yet they’re still struggling with deflation So I’m not sure that central banks have the tools to create inflation right now. But they can’t admit that. No central banker can stand up and say, “well, really we’re powerless to do anything about it.” The former BoJ Gov. Shirakawa effectively said that, and he was forced out of his job early to make way for Gov. Kuroda, who promised to do more.
So the ECB will have to take some steps even if they don’t really think that the steps will make any difference. That’s because of the role that confidence plays in the markets.They have to appear confident even if they’re not.
The question then isn’t whether they’ll do anything. The question is what they’re likely to do, and more importantly, whether it will be enough to impress the markets.
For example, they did increase their stimulus in December. They lowered the deposit rate by 10 bps further into negative territory, and extended the length of time the bond purchases were scheduled to run by six months, as well as some other small measures. But Draghi had built up expectations so high ahead of that event that the small increase was a disappointment to the market, and this is what happened: EUR/USD jumped 4 cents in one day!
So the key point is that this time, they know they’ll have to do something really big, or else the market will once again be disappointed. And a second disappointment after such strong suggestions in January would be really really disappointing for the market. It would send the euro up sharply and stock markets down sharply. And they can’t risk that. Financial conditions in the Eurozone have already been tightening over the last few months, whereas in the US they’re actually looser despite the fact that the Fed hiked rates in December.
So what can they do? They need to make a big impression on the market. Just changing one thing probably wouldn’t be enough. That’s why I expect them to reveal several new measures. Among these, I’d expect to see the following:
- A further cut in the deposit rate. They’ve lowered it by 10 bps increments each time, maybe they’ll try 15 bps this time.
- The introduction of a tiered deposit rate, like in Japan. That will be necessary to prevent the negative interest rates from pinching bank profits.
- Raising the monthly bond purchases
- Extending the minimum duration of the bond purchases
- More miscellaneous measures
I don’t want to get into the question of whether these issues would be effective in boosting economic activity and raising inflation. That’s not what matters for us. The issue for the FX market is whether it’s enough to boost market confidence. I think these measures would demonstrate to the market that the ECB is seriously worried about the downside risks to inflation and to the economy and is going to take, as Mr. Draghi said on another subject, “whatever steps are necessary” to fight them. That should probably boost Eurozone stocks and weaken the euro, as happened when they first cut rates into negative territory.
BANK OF JAPAN
Now, the next meeting is the Bank of Japan the following week. It’s a lot harder to predict what they will do at that meeting. On the one hand, Japan’s inflation isn’t going anywhere. The BoJ even invented a new measure of inflation, one that excludes fresh foods, energy and the effect of tax hikes, in order to make it easier to meet its inflation goal, but that measure too turned down in January.
To make matters worse, inflation expectations are falling. The % of people who expect inflation to be higher next year is falling – that’s the graph on the left – and market-based inflation expectation measures show that the market expects no inflation for the next five years. So there is reason for the BoJ to act again.
On the other hand, we saw earlier how Japanese bank stocks basically collapsed following the move to negative interest rates. That’s the yellow line in this graph. Furthermore, the BoJ board only voted 5-4 in favor of going to negative rates. That’s a very close vote, which doesn’t inspire much confidence in such a radical move.
One of the four people who voted against negative rates – Ms. Shirai – will be leaving the BoJ board on March 31st, and another, Mr. Ishida, will be leaving on June 29th. BoJ board members serve 5-year terms so both of them were appointed before Mr. Abe came into office. If I were Mr. Kuroda, I’d wait until Mr. Abe had replaced these folks with more sympathetic board members before taking action again, rather than risk having the vote go against me. So I think they’ll wait at least until April, after Ms. Shirai leaves, and probably until July before changing rates, unless something big happens. That would suggest the yen is likely to strengthen further after the upcoming BoJ meeting.
After that, it’s a lot to do with the general global risk environment. I still believe that Japanese investors have more money to put offshore and that those capital flows are likely to weaken the yen further, but risk aversion may interfere.
Finally, there’s the Fed meeting the next day. I don’t think anyone expects them to raise rates at this meeting. Nonetheless, I think the market is underestimating the likelihood of another rate rise.
This graph shows the FOMC’s forecasts for the Fed funds rate over time, taken from the materials that they publish every quarter, vs the market expectations as derived from the Fed funds futures. As you can see, there’s a huge gap. The FOMC is assuming at least 3 more rate hikes this year, while the market is only pricing in about a 50-50 chance of even one more. (Note: the probability has increased somewhat since the webinar.) But does the Committee really need to hold off so much?
They have a dual mandate: they have to aim for price stability, which they define as a 2% rise in the core personal consumption expenditure, and full employment, which they estimate to be a 4.9% unemployment rate. As you can see, they’re pretty close to reaching both those targets.
So why didn’t they move in January? They explained that they are “closely monitoring global economic and financial developments and assessing their implications for the labor market and inflation, and for the balance of risks to the outlook.” Note that they said “global economic and financial developments,” not just “domestic economic and financial developments.” So apparently a lot depends on whether global growth recovers and markets around the world stabilize. You can see here from this graph of the implied volatility of various instruments that volatility is still pretty high, but it’s coming down. If that continues, I think they’ll still plan on hiking later this year.
The important thing will be to see the dot plot. This is the dot plot from the December FOMC meeting. Each dot represents the forecasts of a member of the Committee for the Fed funds rate at the end of each year. You can see from this the distribution of forecasts on the Committee. This is where I got the average weighted forecast that I used in the earlier graph. I think if the Committee is still forecasting at least two rate hikes this year, the market will have to adjust its rate expectations upwards. That is likely to strengthen the dollar. If on the other hand the Committee capitulates to the market’s view and forecasts only one hike this year, then I think the dollar will weaken.
In any event, many of the US economic indicators are starting to come in better than expected. The mood in the US is improving. Against this background, I wouldn’t be surprised to see some further downward revision to the Committee’s forecasts, but I don’t think they’re likely to change that much. I expect that the market will be surprised on this account and the dollar will strengthen after the FOMC meeting.
This is Marshall Gittler, head of investment research at FXPRIMUS. Get more market insights on our education pages and turn your trading ideas into action with FXPRIMUS, The Safest Place To Trade.
Brexit – the question of whether the UK will leave the European Union – is on everyone’s mind nowadays, after UK PM David Cameron called a referendum for June 23rd. Will they or won’t they? That’s not necessarily the right question, at least not for now. The proper question for the FX market is, might they? And the answer to that one is a definite “maybe.” So long as it’s “maybe” and not “no,” I think the pound is likely to be under pressure.
Fears of a Brexit have made the pound the worst performing major currency over the last week, even worse than the Argentinian Peso, the habitual resident in the FX basement. Of course, at some point it may mean revert – markets tend to overshoot in one direction then overshoot in the other – but I’m not sure it’s overshot to the downside quite yet.
At the end of the day I don’t think the British public will vote to leave the EU, but the market has to price in the chance that they might, and if that chance increases, then the risk premium associated with British assets and with the pound should increase too. That means a weaker pound.
The problem is that I don’t see things getting better rapidly on the Continent, and therefore I think the risk of higher poll numbers for the “out” vote may increase. In particular, the refugee issue is heating up again and is likely to get even warmer along with the weather as more people decide to leave their shattered homes. Immigration is one of the main concerns of those British who are dissatisfied with the EU. PM Cameron’s modest renegotiation of the UK’s status within the EU will probably fail to mollify these folks.
We can take some lead from the Scottish referendum on independence that was held in September 2014. While in the end the vote went against independence, it was noticeable that support for leaving rose as time went on, while declared support for staying in fell. In the event the vote to stay in was higher than the polls had suggested, but so too was the vote for leaving, as the “I don’t knows” made up their minds. The latest polls show some 46% want to remain in and 38% want to leave, but that’s almost exactly where we were with the Scottish referendum four months before it took place (48% “no” vs 35% “yes”) and it tightened up considerably after that.
Investors who want to take a position on the possibility that the UK leaves should do so by selling GBP/USD or, even better, GBP/JPY. That’s because if something with such wide-ranging and unpredictable implications does actually happen, the safe-haven JPY is likely to appreciate overall. It might also be worth considering buying gold in GBP terms, because gold too could benefit.
On the other hand, I think EUR would also be negatively affected in case of a vote to exit, although obviously not as much as GBP. That’s because not only would a vote to leave the EU be a leap into the unknown for the UK, it would also be a leap into the unknown for the EU itself, too. All sorts of questions arise, such as what will the people in Catalonia or the Basque region do? How would this affect the chances of anti-EUR parties, such as the National Front in France? Etc. Looking at the difference between the 6M risk reversals (which now include the referendum period) and the 3M risk reversals (which don’t encompass that event), it’s clear that the GBP options market is already concerned about the referendum while the EUR options market isn’t. That suggests the issue could put downward pressure on the EUR over the coming months as investors begin to think through the impact of a Brexit vote on other currencies besides GBP.
The year started out pretty badly, with the S&P 500 index down nearly 11% at one point. But since then it’s recovered about 40% of its losses in just five business days. Are we seeing a return of risk-seeking?
Certainly, many of the factors that were weighing on the market earlier in the year have stopped or even reversed. Foremost of these is China, where the authorities offered more measures to support the economy and boosted the currency. The fact that lending soared in January was also significant as it holds out the promise of a stable economy – although one wonders if prolonging a debt-fuelled expansion is really in the country’s best interest over the longer term. A slight rise in inflation there in January is also positive.
Meanwhile, in Europe, ECB President Draghi has reassured the markets that the ECB will do more in March, and even Bank of England uber-hawk Ian McCafferty has turned into a dove. Recent comments by (most) Fed officials give the impression too that they’re in no rush to hike any time soon, either.
The impact has already been felt in the bellwether commodity sector, where prices of many growth-sensitive commodities have risen slightly or at least stabilized after a prolonged period of declines. Brent for example is 25% off its recent lows, while copper is up 5.7% from the bottom.
Against this background, FX traders may want to put on some carry trades, taking advantage of the low interest rates among the buyers of commodities and the higher interest rates among the sellers. Going long ZAR, MXN, NZD or AUD and financing it with the safe-haven JPY or CHF, or the low-interest-rate EUR would seem to be one way to take advantage of this trend, if you think it’s likely to persist.TRY has the highest deposit rates among the readily available currencies, but given the geopolitical problems surrounding Turkey, its currency is likely to be subject to other forces. RUB is a strong oil playthat also has high rates; market participants who expect that oil will even stabilize should consider that currency too.
The Bank of Japan: Propping open Pandora’s box
The Bank of Japan’s introduction of negative interest rates is one of the most significant events to hit the FX market recently. By taking this action, the BoJ has basically said that its bond-buying operations have reached their limit and they need to find other ways to support the economy. The likely channel is through the exchange rate: by depressing interest rates across the yield curve and (one hopes) raising inflation, the BoJ is aiming to lower real interest rates. This won’t benefit companies that much, because they can already borrow at extraordinarily low rates, so the aim must be to push down the yen by making overseas investment more attractive and at the same time implicitly guaranteeing Japanese investors that the authorities will prevent the yen from strengthening.
Looking away from the yen, how might this move affect other countries? There are two ways: through trade and through policy. On the trade front, countries that compete with Japan are not likely to give up without a fight. I would expect to see other trading countries, such as South Korea, allow their currencies to weaken, too.
The big question will be whether or how China responds. If China responds by letting its currency weaken too, then that could set off a repeat of the round of risk aversion that we saw last August. Note that China has changed its way of managing the CNY and is now managing it against a basket of currencies, rather than just against the dollar, so it may move to offset a weaker yen. On the other hand, the country’s exports to Japan are relatively low compared to its imports from Japan, so it may decide to let the move slide as a wash.
The policy implications may be even more important. Simply put, now that two major central banks have instituted negative rates, the policy is no longer experimental but rather is a “standard policy tool.” Thus the BoJ has in effect validated it for other central banks. This had an immediate impact on the UK, where the market is now pricing in more of a chance of a cut this year. Sweden, Denmark and Switzerland, which all have negative rates now, may be emboldened to lower them further. It may also help ECB President Draghi to overcome opposition on the ECB Governing Council to lowering rates further into negative territory. (Note that the BoJ specifically said it would buy bonds at yields below its deposit rate, contrary to ECB policy.)
The BoJ said it “will cut the interest rate further into negative territory if judged as necessary.” And if other central banks cut in response to Japan, and then it cuts again, and then they follow again…it looks like the currency war is in full swing. The loser of this war – and hence the strongest currency -- is likely to be the dollar, as the Fed will probably at least keep rates steady if not hike further.
Special report: Today’s US nonfarm payrolls report for January
1330 GMT: US nonfarm payrolls (Jan) Today will be spent waiting for the US nonfarm payrolls report, the big indicator of the month. Strong employment data should encourage the Fed to keep hiking while any weakness might convince them to stand pat for longer. The market is looking for a relatively robust rise in payrolls of 190k, but after the stronger-than-expected ADP report of 205k, some people may have upped their forecasts. That would be a bit below the recent trend (229k a month over the last six months) but that would be quite reasonable after the enormous December (292k) and October (307k) increases. The market will also pay attention to any revisions to those earlier strong figures.
To be really supportive of the dollar, the figure would also have to show a rise in earnings and a rise in the participation rate, which are announced at the same time.
The reason is, the Fed wants to see a healthy job market. One part of that is that demand for labor should be rising and therefore the cost of labor should be rising. This has been happening; the rate of growth in earnings has accelerated from an average of 2.0% yoy in 2014 to 2.2% in 2015, and it was 2.5% yoy in December. However, the market is forecasting that the rate of growth in average earnings fell back to 2.2% yoy in January. That could be a negative for the dollar.
Another aspect of a healthy labor market should be more people coming off the unemployment rolls and into the work force. That would mean a continued rise in the participation rate. The participation rate hit a bottom of 62.4 in September and has since crept up to 62.6. That’s still low but at least the trend is upwards. No forecast is available for this indicator.
The unemployment rate is expected to stay at 5.0%. Only an extreme NFP number would be likely to change that.
It will be interesting to see how the market reacts to the data. On one hand there could be some relief if the data is weak, as it would discourage the Fed from hiking again any time soon. That could help risk-sensitive assets, such as the AUD and stock markets. On the other hand, more weak US data just adds to the evidence that the Fed shouldn't have hiked in December in the first place! One expects that the dollar would weaken in case of a miss or strengthen in case of a beat.
However, it’s not always like that. This graph shows how EUR/USD moved in the hour following the NFP the last six times that it missed its forecast. Curiously, the dollar strengthened three times and weakened three times.
On the other hand, the dollar gained for at least the first 30 minutes when it beat expectations. So it seems to me that its movement has more to do with the market’s view on the dollar than with what the number is. In today’s case, the market seems to be negative about the dollar for the moment, so unless it’s a pretty strong beat, the dollar could move lower.
13:30 - Canada – Unemployment rate and employment Change (Jan) At the same time, Canada releases its employment data for January as well. The market expects the unemployment rate to stay at 7.1% and for the economy to add 6k jobs, down from 22.8k in December. As the Canadian economy is increasingly affected by the weak oil price, there is a danger that unemployment may tick higher and job gains lower.
The Delphic Fed
The Fed’s January statement has replaced “Forward Guidance” with Delphic commentary that investors can interpret in line with their own biases. Some market participants believed that the Committee was still hawkish, because they did not rule out another rate hike in March (hence the fall in stocks). At the same time, those so disposed could interpret several key changes in the statement as dovish (hence the fall in bond yields). It’s as if they are now taking lessons in market communication from former Fed Chairman Alan Greenspan, who once told a senator that “if you understand me, I must have misspoke.”
They no longer say that they are “reasonably confident” that inflation will rise back to its target, but they did not say they think it won’t rise back to the target. They also removed the sentence about the risks to economic activity and the labor market being balanced, but they didn’t explain which way they do see the risks tipping. And they said they are “closely monitoring” global economic and financial developments, effectively a euphemism for China, oil and stock prices. “Closely monitoring” is a catchphrase for the Fed, much like the ECB saying it is “vigilant” the month before it takes some policy action. “Closely monitoring” means they’re worried about some issue that may affect policy, but it allows them to remain vague about what they intend to do about it. So at the end of the day investors are probably more confused than ever about the FOMC’s intentions.
There may be a reason for this ambiguity: it could be because the Committee isn’t sure what’s going on, either. The Fed is notoriously poor at forecasting the economy and the current mixed bag of indicators doesn’t make it any easier, especially if you start off by ruling out forecasting a downturn. A study by researchers at the San Francisco Fed showed that since 2007, the FOMC has been “persistently too optimistic about future U.S. economic growth.”[i] The previous year’s most recent annualized quarterly growth rate accounts for 62% of the variance in the FOMC’s forecasts even though there is little correlation between the quarterly growth rate at the end of one year and the actual growth rate over the next year, according to this study. In other words, despite the dozens and dozens of PhD economists at the Fed slogging away at forecasting the economy, the group responsible for steering the world’s largest economy basically makes policy using the rule of thumb that the future will be pretty much like the recent past.
In fact, it seems that the market is better at forecasting what the FOMC will do than the FOMC itself is! Note how much higher the Committee’s forecasts for rates at the end of 2015 were than the market’s.
The bottom line is that whether they hike again in March depends on the data, as usual. We now look to Fed Chair Yellen’s testimony to Congress on Feb. 10th for some clarity, but I doubt if we will get clarity then either, because I doubt if she has any clarity to give. This is only realistic, because in fact the economic signs are indeed mixed at the moment.
Is this ambiguity good or bad for the dollar? I believe that as long as they don’t rule out further rate hikes or change their forecasts, it should be dollar-positive in that the Fed remains more hawkish than the market. Moreover, the monetary policy divergence theme remains intact on the ECB’s side, if not the Fed’s. Nonetheless, that is all in the price already and so should not be much of a factor for the dollar’s future direction. We’ll have to see how the dots fall in March.
[i] Lansing, Kevin and Benjamin Pyle. 2015. “Persistent Overoptimism about Economic Growth.” FRBSF Economic Letter 2015-03. Available on the web at http://www.frbsf.org/economic-research/publications/economic-letter/2015/february/economic-growth-projections-optimism-federal-reserve/
Facing the same problems, central banks decide to wait and see
Both the ECB and the Bank of Canada remained on hold this week, but they both showed a bias for easing. The common point from their analysis was how both economies are being buffeted by the crisis in emerging markets and the collapse of oil prices. ECB President Draghi listed “uncertainty about emerging market economies’ growth prospects” and “volatility in financial and commodity markets” as two of the biggest factors causing heightened uncertainty, while BoC Gov. Poloz was more specific in mentioning “recent developments in China.” Of course falling oil prices hit the two areas in opposite ways: Draghi noted that lower oil prices should help consumers and companies, while Poloz said the BoC Governing Council focused its discussions on the implications of oil for the Canadian economy – one assumes not on how beneficial these implications would be.
One other notable difference is that the fall in oil prices has recently had a different impact on Canadian inflation than on Eurozone inflation. In past years, higher oil prices have meant higher inflation in Canada as they boosted the Canadian economy, while lower prices naturally meant lower energy costs and lower inflation – just like in Europe. But recently, the collapse in oil prices has been enough to send the currency plunging, and that has pushed up the price of imports, including food. The result is that Canadian inflation has actually been rising recently (watch Friday’s CI for December).
This creates somewhat of a policy dilemma for Canada. On the one hand, the economy is slowing and lower rates may be necessary to support business. On the other hand, that would probably weaken the currency further and push inflation up more (although at 1.4% it still has some way to go before it breaks out of the 1%-3% target range). My guess is that they will probably stand pat for some time further while they wait to see what kind of fiscal plan the new government comes up with. Meanwhile though I expect the market to do their work for them by continuing to weaken their currency as oil prices fall.
In the Eurozone I don’t see any such dilemma. So far the ECB’s QE program seems to be boosting bank lending without causing any harm to the average individual, as retail bank deposits have yet to go negative. Oil prices are now far below what the ECB staff assumed when they made their forecasts in December, and the International Energy Agency Tuesday warned that the market “could drown in oversupply” as Iran resumes supplying world markets. It’s quite likely that they will have to lower their 2016 inflation forecast of 1.0% at the March meeting, and probably the 1.6% forecast for 2017 too. Can they assume that oil prices recover by 2018? Nobody can assume anything nowadays. Draghi himself said that “the credibility of the ECB would be harmed if we weren’t ready to revise the monetary policy stance.” Of course, he also hinted that there would be more of a move in December than there actually was, but it will be hard to ignore yet another round of cuts in the inflation forecast within the time horizon of the ECB’s monetary policy. Further easing from the ECB should reaffirm and reinforce the “monetary policy divergence” theme that has been pushing EUR/USD down for some time.
Next week there are two more central bank meetings: the Fed on Wednesday and the Bank of Japan on Friday. The Fed is likely to stand pat, as not enough time nor data has gone by since the last meeting to conclude that further tightening is warranted. The Bank of Japan though faces a dilemma, though the opposite one from Canada’s: its currency is strengthening even while inflation is slowing. They too may choose to stand and wait at this meeting, but I think eventually they will have to take further action to prevent the safe-haven yen from becoming a danger to themselves.
How Did Pundits Do in 2015? Not Very Well, As Usual
This first comment of the year is always the most fun one for me. I’m going to compare what the market was forecasting for 2015 with what actually happened. The result, as usual, was that the pundits did poorly. Flipping a coin would have resulted in a pretty similar result and only cost you whatever the coin was worth.
For “market forecast,” I’m using the median consensus forecast from Bloomberg on 31 December 2014.
To start with, here’s a graph comparing what the market forecast the spot return would be for each of 31 major currencies against the dollar (the Y axis) vs what the spot return actually was (the X axis). (Spot return is just the change in the price of the currency.) If the market forecast was exactly correct, then the dot would fall on the yellow line.
The results were not particularly inspiring. The market only got the direction against the dollar of 17 of the 31 currencies correct or 55%. This about what one would expect by flipping a coin.
The biggest errors were BRL (expected: -1.7%%; actual: -33%), ZAR (+0.6% vs -25%), COP (+2.6% vs -25%), RUB (+16.5% vs -20%), MXN (+9.3% vs -14%) and TRY (-0.6% vs -20%). Clearly the market underestimated the decline in commodity prices, particularly oil, and the sell-off in EM currencies, not to mention the political turmoil in Turkey. What this suggests is that the slowdown in China and the sharp fall in oil prices were major surprises to the FX market.
Also note that almost all the currencies are either on or above the yellow line, meaning that they either met or were weaker than the market consensus. Only CHF (which abandoned its peg vs EUR) and JPY performed better than expected. That shows how the market underestimated the dollar’s rally in general.
If we look at total return (spot return plus interest income), the picture is even worse. In this case, the market got only 13 of 30 currencies correct, or 43%. Apparently the errors in forecasting interest were added onto the errors in forecasting currency rates, rather than cancelling each other out.
RUB was the major outlier; the market expected a total return of 45% but in fact it lost 8.5%. Many of the other commodity currencies also did much worse than expected on a total return basis.
One interesting point: ARS had the worst spot return (-35%) but the best total return (13%) of any of the currencies. It happened in 2013 as well that ARS was both the worst-performing and best-performing major currency in the world at the same time.
This analysis could be depressing for retail investors. You might think, if the highly paid experts working at the big investment banks who spend all their time thinking about FX can’t do any better than flipping a coin, how on earth can you? But I look at it the other way. This analysis suggests that even an amateur has a fighting chance against the experts, because the experts (and I include myself in this group) don’t really know for sure what will happen, either!
When will be the Fed’s next move?
Now that the Fed has started its process of “normalizing” interest rates, the question the market is focusing on is: when will be the Fed’s next move? I expect that there will be a period of waiting and watching while the FOMC members assess whether inflation is going to reach their target. If they decide it is, then they will tighten further and USD will appreciate; if not, then we may have reached almost the maximum for “policy divergence” and USD could weaken. But while they are waiting and watching, the dollar is likely to trade in a range.
Fed Chair Yellen spelled out in broad terms the conditions necessary for further tightening in her opening remarks at the press conference following the recent FOMC meeting. She said that “the process of normalizing interest rates is likely to proceed gradually, although future policy actions will obviously depend on how the economy evolves.” In other words, we are not to expect a rate hike at each meeting, as happened in the 2004 tightening cycle; each meeting is “live,” i.e. they will have to make a fresh decision at each meeting.
Under the Fed’s dual mandate, it is required to pursue “maximum employment” and “stable prices.” The former they define as 4.8% to 5.0%, which means that with the unemployment rate currently at 5.0%, they’ve met their goal. The latter they define as “inflation at the rate of 2 percent, as measured by the annual change in the price index for personal consumption expenditures.” They’re not there yet by any means. That means progress on inflation will determine whether they hike or not. Inflation data may therefore supplant the monthly nonfarm payrolls as the key indicator for the markets.
With inflation taking the spotlight, the monthly personal consumption expenditure (PCE) deflator, the Fed’s main target, becomes an even more important indicator than before. The figure for November, which was released Wednesday, showed the overall deflator rising 0.4% yoy – a welcome acceleration from +0.2% yoy in October but still close to zero -- while the core index, which excludes volatile food and energy costs, remained at 1.3%, well below the 2% target.
While their target is defined as the PCE, the market assumes they look more at core PCE. The recent movements of this indicator are not encouraging. The three-month change annualized hit the target earlier this year, but has since declined and is now bouncing around 1.2% -- exactly where the yoy rate of change is.
Given the relatively stable inflation rate, I would expect a period of stability on the FOMC too. I don’t see much chance of another rate hike at the January meeting; I think the earliest would be the next meeting after that, in March. That means we may be in for a period of range trading on the dollar, at least against the major currencies.
I still believe that the Committee wants to raise rates further in order to normalize their monetary policy, but they need to move within the context of their mandate. That means they will be watching the inflation numbers carefully – and so should we.
South African Rand: stay away!
There’s been a lot of attention focused on the commodity currencies recently as commodity prices dive. I took a look at the South African Rand (ZAR) to see how it behaves relative to various commodities, stock market indices and interest-rate spreads and found out the following:
- 1) The strongest correlation is clearly with stock markets, notably the MSCI Emerging Market stock market index but also the S&P 500. As such, it appears that ZAR is a typical growth-sensitive EM currency.
- 2) It is more sensitive to movements in industrial metals than precious metals, even though the latter are a much bigger share of the country’s export basket. That probably ties in with metals as an indicator of global growth
- 3) The spread between official interest rates in the US and South Africa is little use in determining the exchange rate. On the contrary, the two-year spread actually works in reverse: that is, ZAR tends to weaken against the USD when the spread widens. That suggests that the causality runs the other way, i.e. the spread is driven by the FX rate rather than the FX rate being influenced by the spread. Note though that I only looked at nominal interest rate differentials. Other research found that real interest rate differentials (that is, after adjusting for inflation and default risk) are a significant determinant of the exchange rate.
The one thing that these sorts of studies don’t pick up is politics. Emerging markets have been described as "those countries where politics matter at least as much as economics for market outcomes,” and that certainly holds true for ZAR. (RUB and MXN are also EM currencies, but they are more closely correlated with oil than ZAR is.) For example, we saw barely a ripple in CAD recently when the Liberal Party ousted the Conservatives after nine years in office. On the other hand, on Wednesday USD/ZAR jumped after the well-respected Finance Minister was replaced, reportedly in part because of his opposition to a transaction involving a friend of the PM. ZAR is now at a record low.
My conclusion from this analysis is that when the commodity currencies are weak, ZAR is likely to be particularly weak. That’s because of second-round effects of commodity prices on local politics: low tax revenues and falling employment in the mining sector are likely to increase political instability. That’s why even though ZAR offers relatively high interest rates, I would not recommend carry trades using it at the moment.
Thinking about the direction of currencies in 2016, we have to start with the question: what will be the main themes likely to persist throughout the year? The past year was dominated by fears about global growth, particularly China; the decline in commodity prices, particularly oil; and the dénouement of policy divergence between the US and the rest of the world, particularly the EU.
The global economy doesn’t hit a reset button on 1 January and so I expect these trends to continue at least into the first half of the year and probably longer. Specifically, I expect Chinese growth to slow further as the government continues its multi-year effort to restructure the economy. That means the price of commodities used for capital investment, such as iron ore and copper, are likely to remain under pressure for longer than those for day-to-day use, such as oil. The oil-sensitive currencies (CAD, NOK, MXN, RUB) may therefore recover vis-à-vis the AUD, CLP and ZAR.
One side-effect is that EM countries, particularly China and the oil producers, may continue to run down their FX reserves. Their sale of US bonds should keep US interest rates well above those of other countries and support the dollar.
Slower Chinese growth and weak commodity prices also imply no quick return to inflation. The ECB and BoJ are therefore likely to ease further. I expect the BoJ to follow the lead of the ECB and SNB and to lower rates into negative territory for the first time in that country. That would probably propel USD/JPY higher still.
At the same time, the FOMC thinks rates will rise much more quickly than the market does. Assuming the Committee is even only half correct, that means further monetary policy divergence and a lower EUR/USD.
As for new trends, watch the refugee crisis in Europe. This issue will add to the pressure on the EUR as the institutional foundations of the EU starts to crumble: first the Shengen Agreement, then the debt limits, and then what? Furthermore, political disarray and high levels of immigration on the continent increase the possibility that the UK votes for a Brexit – another big uncertainty for the market, and one that is liable to weigh on the pound.
The US would seem to be an island of stability in this uncertain world. However, the impact of higher US rates and the Presidential election in November is likely to add to the global uncertainty. Still, the economics and the politics favor the dollar in 2016, in my view.
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