Last week was a bit of a mixed bag when it comes to employment numbers in the US. NFP broadly in line with expectations and trend. Unemployment fell to a level below the Fed target and all sounds rosy. However the fall in unemployment was mainly due to a fall in the participation rate which of course is not so positive. However all in all the prints were OK and should not dampen the Feds spirits to give us all a very merry Christmas hike. In fact markets are now pricing in 3 or 4 rate increases to come b4 end 2018 so again we will have the questions in 2017 of whether the next meeting will bring a hike or not. This for us is fun of course as brings plenty of opportunities for trading. As the Bureau of Labour Stats graphs show toto is a long way from 2010
Well talk about excitement from trusted financial reporters getting it wrong to bears getting upset, the Euro took off. Everyone from Goldmans who saw a 200 to 300 point drop to the average punter expected the Euro to fall on some anticipated very bearish Draghi comments to come. But the markets said No; not today and the depo rate was only cut 10basis point and the euro flew north.
As mentioned last week every participant is hanging off the mere breath of Central Bankers and when the market is disappointed this time of year there is going to be a lot of pain including yours truly.
Lucky for me I heeded my own advice and overall I came out unscathed with my long aud/usd being able to offset my losses on a Euro short but could have played smarter. Anyways that's the game where in lose some win more.
I will be looking for some Euro short opportunities and build a position up but be careful as we are likely to see some volatility over the coming days especially if NFP pulls a big surprise.
The Fed as expected kept the rates on hold but clearly the tone has moved to a less Dovish stance. Whilst outlining the key watch items that havent really changed they have noted improvement in housing and employment holding steady as well as more confident in hitting the 2% inflation target in the medium term.
"In determining whether it will be appropriate to raise the target range at its next meeting, the Committee will assess progress--both realized and expected--toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments."
Inflation globally is being held back for numerous reasons but energy prices is a large factor. If one believes we are at a bottom of the cycle, in fact oil surged 6% last night, then inflation could pick up quiet nicely. The US consumer based on previous economic announcements are also adding their bit by more promising consumer and retail numbers overall.
On the other side of the pacific the CPI numbers for Australia released yesterday showed a marked deterioration across all measures. This will put the rBA under more pressure to decrease rates for an economy that is struggling to shrug of the end of the mining boom - sounds like a tired record and it is but nothing has demonstrated that the economy at play is doing everything they can to improve upon this. Its not all doom and gloom but the large broking houses are now all running stories with recession in the title - whether thats will avoid or coming your way.