Thursday, September 04, 2008
It's central bank day in Europe, so there's plenty of potential for fireworks if the cards fall correctly. We've already had something of a surprise, as Sweden's Riksbank hiked rates but then issued a stream of dovish statements, confounding expectations that there might be one more rate hike in this cycle. The central bank governor of Turkey, meanwhile, suggested that the CBT would start discussing rate cuts this month following the decline of oil prices and the subsequent decline in inflation.
The main course(s), of course, are the BOE and ECB, with the press conference of the latter coming under particular scrutiny. An equity manager friend of Macro Man's told him this morning on the train that he expected the BOE to cut rates today. If this forecast (or, perhaps more appropriately, wishcast) fails to materialize, today's early morning rebound in the the FTSE could swiftly reverse.
That's not to suggest that the BOE shouldn't cut rates, of course. Macro Man's favourite BOE indicator, his labour market momentum model, suggests that the BOE should begin easing aggressively. The inflationary fallout from Rip-Off Britain will, of course, preclude rates from going to the levels suggested in the chart below. While a lot of the focus has been on rising prices of necessities (energy and food), Macro Man was stunned to see that the price of his morning Times rose another 10p this week. Since the end of 2003, when your author moved back to the UK, the price of his morning paper has risen from 35p to 80p. Chances are that Merv the Swerve is just as concerned about that as he is the implosion of the housing market.
In Europe, meanwhile, all eyes will be on the smuggest man in finance at 1.30 pm London time. This month's press conference is particularly important, coming as it does after another month of crappy data, a sharp decline in the euro, and a collapse in oil prices. Markets appear to be fearful of Trichet echoing recent hawkish sentiment from sundry governing council members, as European fixed income has traded with a decidedly weak tone today.
Should Trichet fulfill the hawkish expectations, it would beg the question of what the hell he needs to see before adjusting his outlook. The cycle in Germany has ground to a halt, and the country now faces a real prospect of sequential quarters of negative growth. In fairness, labour markets have yet to display much weakness, but forward-looking indicators such as the ifo
or manufacturing orders (pictured above) have absolutely collapsed.
Perhaps M. Trichet is waiting for the lagging data to roll over before changing his stance; if so, Macro Man would suggest that he takes his rearview mirror and go to work at a ratings agency after he leaves his current post.
What might also be interesting for markets is if Trichet announces a change to the ECB collateral guidelines, as the market scuttlebutt is that the ECB feels like banks are abusing the current framework. Should they tighten up the collateral rules, this could put renewed pressure on European banks, which already face substantial debt rollovers for the next eighteen months. It will also be interesting to see if JCT mentions the euro; given the persistent European whingeing this year, anything other than acceptance of the move would be the basest hypocrisy.
Elsewhere, hunting season is picking up steam. The rouble basket is up another half a percent today, breaching yesterday's highs. Ouch! JGBs have collapsed, and another high-profile commodity punter has imploded.
This begs the question of where the remaining pink flamingos reside. So Macro Man puts it to his readers, particularly those with skin in the game: where are the remaining consensus trades that are well-owned, stale, and ripe to get shot down this hunting season?