The World Overall

One Financial | Andrei Wogen| finance.wogen@gmail.com|For the Week of: 05/24

Last Week in Review

GBP The Bank of England meeting minutes were actually a bit more
optimistic than I was expecting. The Bank did say that rates will not be
raised yet but all members decided that rates would more likely than
not rise within the next 3 years. They also sounded optimistic on
inflation, saying that while it will likely stay low for a while, data from
such things as the RICS, are beginning to show some improvements.
Also, they expect the unemployment rate to continue to lower thereby
helping to lift wages and therefore helping to lift inflation too. The Bank
also expects Q1 GDP to be revised higher and for growth to pick up on
the whole through this year. So, it would appear that the Bank of
England is gearing up for rate hikes but that due to lower inflation in
particular, they will be holding off for a bit longer. On the inflation front
too, this was released last week and it showed the lowest level in
headline inflation since the data series began back in 1996. Year-overyear headline inflation came in at negative territory in fact and core
inflation also fell.
EUR As for data last week, readings on the economy came in mixed
to slightly weaker overall. The second reading of Germanys first
quarter GDP came in pretty much inline with the first estimate but on
the downside monthly manufacturing and services PMI data numbers
came in weaker overall than expected and previous for Germany,
France and the Euro Zone. On the whole it is not looking that promising
for second quarter growth from the Euro Zone after the decent start to
the year as seen in first quarter GDP data last week. Turning to the ECB,
their minutes from their last meeting but there was little to glean from
them. However, the unannounced and in some ways secret meeting that
included ECB members Coeure and Noyer got more attention. Partly it
was because the text of the speech was released about a day after it
happened so questions were raised (once again) on fairness and
transparency and so forth. The other reason it got the attention it did
though was because both members were quite dovish in their tone
towards QE and rates both. Coeure mentioned that the deposit rate
could be moved lower than it is, further into negative territory. If this
happens this would open up the option that the ECB would do more QE
than it is already committed to doing. There were also concerns about
the recent bond moves and supply for the ECBs QE program going into
the summer months especially. So some dovish comments overall and
what caused a pretty good drop in the Euro during the week. As for
Greece, they continued to be in the headlines as yet another IMF
payment is due from Greece on June 3rd. Negotiations continue though
between Greece and its creditors with no signs of break through.
AUD The RBA released their meeting minutes from their monthly
meeting that occurred earlier this month. At that meeting they cut rates

by another 25bps and so much focus was on this in the minutes. There
was some discussion on whether it was better to wait until the June
meeting to cut rates or not. They decided to cut them at the May
meeting though but they also said in the minutes that guidance on rates
would not limit the scope of future action at future meetings. So it
would seem that rate cuts in the future are still very much on the table
at the RBA. As for the Banks assessment of the Australian economy this
was rather dovish overall as they lowered their assessment and
expectations of the employment and wage picture in particular.
However the minutes did say that the cut in rates was done in part to
help support the encouraging upward trend in household demand that
the Bank is seeing right now. Turning to the Aussie Dollar and housing
market, as for the former the Bank once again said that a lower AUD is
necessary to help the economy grow and improve. As for the latter, the
housing market, while they did say they are concerned about the
strength of the housing market in Sydney the rest of the country is
looking weak to them. So in terms of rates too when looking at ht
housing market, it would seem that the housing market will not be a
reason for the Bank to not cut rates again. Basically they dont see too
many risks to the housing market if they decide to cut rates again. So,
overall the Bank still seems to be quite dovish in their tone towards the
economy and rates. These minutes too also seem to go against what the
market was thinking after the RBAs meeting earlier this month, that
their easing bias was likely done after this most recent rate cut. It would
seem, once again, that the Bank is still considering more cuts in rates or
at the very least some sort of action to help bring the Aussie Dollar
down more.
JPY First quarter GDP surprised to the upside making the Japanese
economy look a bit better than what I and others have thought. Both
quarterly and annualized data came in above expectations but the GDP
deflator data (price data) came in weaker than expected but still above
last quarters reading so better news on the inflation front too. As far as
the internals go things were mixed. Consumer spending and inventories
both strengthened and with the consumer in particular it would seem
that the effects of last years tax hike are beginning to lessen and go
away. However, on the business front, both exports and business
spending came in weak. This is a concern as one would expect that with
the Yen at such a low value compared to pretty much every other
currency on planet earth, businesses would be benefitting from that but
that is not being seen very much yet. So something to keep an eye on
there. But, on the whole the growth data puts any more BoJ easing on
the back burner for a little longer. How the year plays out for Japan
going forward will definitely be looked at by the BoJ in particular and
will help in their decision on whether to ease policy further.
USD The FOMC minutes last week all but confirmed that the Fed
will most likely be holding off on rate hikes at their upcoming June
policy meeting. Concerns in the minutes included the weak US
consumer and other disappointing data. This disappointing data
doesnt include first quarter GDP numbers which were released just last
week so yet more data that the Fed will likely be disappointed in. Other
concerns that were raised included international events with Greece
being named as the main risk. The FOMC also voiced concerns about
what a rate rise would do to the volatility in financial markets and
whether or not a US rate rise would ignite a rise in long-term rates
similar to the taper tantrum. An interesting comment and a view I think
that should be watched more closely to see how it evolves in the Feds

meetings going forward especially given the fact that shortly after this
meeting the whole bond market rout that spilled over into other
markets around the world began. In my opinion then, I think the Fed is
even more concerned about what a rate rise would do to markets and
this concern I suspect could put a Fed rate rise on hold for even longer.
Not the only factor mind you, but definitely one of the main ones that
the Fed will use to hold off on raising rates. The other factor though that
will be looked at is of course inflation. April CPI was released last week
and while the headline was weaker than expected Core came in better
than expected as year-over-year inches ever closer to the 2% level. This
is an encouraging sign and could very well put the Fed on course to
raise rates in September. However this also, in my mind, still keeps a
June hike on the table but only slightly as it is only one months worth
of data. One thing though that the Fed will have to watch for is if we get
higher and higher inflation while growth continues to remain weak. If
this happens then this would put the Fed in a position where theyd
have to raise rates in order to tame inflation.
JPY The BoJ left its policy on hold but did slightly revised up its
assessment of the economy. The central bank said Japans economy
continues to recover moderately in their statement and this wording
was slightly more positive than the last statement. Their focus in terms
of improvement was on firming private consumption and housing
investment that they see as bottoming out. On the inflation front, they
continue to anticipate that it will be a while yet before their 2% target is
reached. Last month the BoJ dropped their goal of reaching their 2%
inflation target by the end of this year as inflation has fallen to pretty
much zero when taking out last years sales tax hike. So the BoJ still has
a ways to go yet to reach their target and this is one of the main reasons
that I and others are expecting that the BoJ will ease policy further but
with improvements beginning in the overall economy, though small, the
Bank will be holding off a bit on further easing.
CAD While US inflation surprised to the upside, Canada inflation
came in lower than expected which puts a pause in the overall uptrend
we have seen in Canadas inflation over the past several months. So
while it does increase the chances of BoC easing it is something to watch
as the overall economy in Canada continues to remain weak.

What to Watch this Week

USD There are two things to watch for this week that will be
important in terms of the overall rate environment and in terms of when
the Fed is most likely going to raise rates. The first important piece of
data will be durable goods orders on Tuesday for the month of April.
Because the Durable goods numbers go into the overall growth
numbers they are important to watch for helping to determine what the
overall growth numbers could likely be and given that so many banks,
analysts, investors and the like have downgraded their expectations for
Q2 growth, a stronger durable goods number will help reverse those
expectations some and thereby likely give a lift to rate hike expectations.
Speaking about growth, the other main and important data release this
week will be the second reading on first quarter GDP. Hopes are for a
better reading than the preliminary reading released just a week or two
ago but the reality is that there is much risk for a lower number and
probably even more so than for a better reading. A better reading

though would be a very encouraging sign for sure for the markets and
for those looking for a rate hike this year with September now being the
next date that is in focus for a rate hike from the Fed.
GBP The second reading of GDP for the first quarter will be in focus
for the UK markets this week. The Bank of England expects that it will
be revised higher and so we will have to see if those expectations hold
true or not. The first reading a couple of weeks or so ago came in lower
than expected as it is so an improvement will be an encouragement for
the markets and the BoE alike.
JPY Inflation data for this week will be in focus for the Yen and
Japanese markets. Last months data showed a little rise higher in the
data overall and so focus will be on if this move higher in inflation is a
new trend starting or just a hiccup before the next move down. The data
coming out of Japan recently has been doing somewhat better but one of
the biggest weaknesses still is the price data, both output and input. So
in my opinion there is still quite a bit of risk that inflation will continue
to stay low and even fall some more. Also this week BoJ meeting
minutes from last weeks meeting will be released as will trade balance
data for the month of March. The latter will be in more focus and signs
of more improvement in the Japanese economy, particularly in the
business sector via the exports.
CAD The Bank of Canada will meet this week amid expectations for
no change in their policy, including rates. Recent comments from Bank
of Canada Gov. Poloz shows that the Bank is still contender about the
outlook for the Canadian economy but that they are hopeful and
expecting improvement to increase in the overall economy. The main
risks though in their mind, and these risks I see as well to the Canadian
economy, is what the effect that low oil has really has had on the
Canadian economy as its effect is not yet well known yet. The other
main risk is how the US will perform and the final risk is the housing
market which continues to show strong price gains but in an overall
environment of weakness the housing market does pose a risk in terms
of how these rising prices are and will affect things including house
sales and mortgage rates and payments. On the whole though I expect
that the Bank will leave rates on hold for now as they are likely in a
position of wait-and-see after they unexpectedly cut rates a couple of
meetings ago.
EUR The Greece saga will continue to be the focus in the markets. As
usual. It is really quite difficult to tell how the negotiations between
Greece and its creditors are going but as there has yet to be a deal
reached I can readily assume that things are not going well. As for
Greeces finances, they are fast running out of money and so something
will have to be done one or the other and soon. They have yet another
payment due to the IMF on June 3rd and if some sort of an agreement is
not reached by then I think that could very well be the true beginning of
the end for Greece in the Euro Zone. But this whole saga continues to
keep the markets and myself guessing and so at this point anything can
happen and will happen too I am sure. On the whole though, the
markets continue to expect that an agreement will be reached and so if
indications increase that a deal will not be reached, this I think will
cause the Euro to fall as the market prices in the risk of a Grexit.

Overall Sentiment Indicator

Asset

Overall Sentiment

Strength Rating

US Dollar

Positive

Euro

Positive

Pound

Positive

Canada Dollar

Positive

Australian Dollar

Positive

Japanese Yen

Negative

New Zealand Dollar

Neutral

Economic Calendar
Region

Event/Data

Expected

Date

Time (EST)

Japan

Trade Balance, Total

-318.9B

05/24

7:50pm

New Zealand

Trade Balance

05/25

6:45pm

United States

Durable Goods ex. Transportation

5%

05/26

8:30am

United States

Durable Goods Orders

-0.2

05/26

8:30am

United States

New Home Sales

0.510M

05/26

10am

Canada

Bank of Canada Rate Statement

05/27

10am

Canada

Bank of Canada Rate Statement

05/27

10am

Japan

Labor Cash Earnings y/y

05/27

9:50pm

Euro Zone

Consumer Confidence

05/28

5am

United States

Pending Home Sales

05/28

10am

Japan

National CPI ex. Food and Energy y/y

05/28

7:30pm

Japan

Tokyo CPI ex. Fresh Food y/y

05/28

7:30pm

Japan

Industrial Production

05/28

7:50pm

Euro Zone

Italy GDP Q1 q/q

05/29

4am

Euro Zone

Italy GDP Q1 y/y

05/29

4am

United Kingdom

UK GDP q/q Q1

05/29

4:30am

United Kingdom

UK GDP y/y Q1

05/29

4:30am

United Kingdom

UK Total Business Investment y/y Q1

05/29

4:30am

United States

GDP Annualized Q1

05/29

8:30am

United States

GDP Price Index Q1

05/29

8:30am

United States

UoM Consumer Sentiment

05/29

10am

0.75%