Barbara Rockefeller
Rockefeller Treasury Services, Inc.
Outlook
Data today is not top-drawer—the usual Thursday jobless claims, new home sales and the flash Markit PMI. This gives us some room to mull over developments, although it would be nice to have something new. Maybe the IMF’s downward revision of US GDP is “new”—only 1.7% this year, revised from 2% in June and against the Fed’s forecast of 2.1%. Yikes! This doesn’t remove but it does weaken the dollar-support of relative growth. It also suggests the Fed will be even more dilatory in getting to that first rate hike, although the 2-year note yield is 1 point higher at 0.48% and so is the 10-year (to 2.48%).
About Ukraine/Russia, we need to see if the European Commission report inspires action. History and market prices tell us it will not, but you never know. The EC could grow a spine. The problem with spine is that it can lead you to renditioning prisoners of war to places like Poland, as the European Court of Justice accuses the US. Even if the EC defers real action this time, it looks like there is some serious political will not to cave to business relationships. And even if the EC delays and delays and delays, Russia is still in the soup, especially if the Norwegians pull out their investments, starting a landslide. And Norway isn’t even an EU member. This could mean there will be bottom-fishing in Russian assets at some point in the far distant future, but those who started early made a mistake.
A third factor is jawboning currencies. We are amazed that the uproar of a few years ago at G20 has not resumed. Verbal intervention is becoming ever more blatant, including most recently Australia and New Zealand. Today French PM Valls complained again today about the too-strong euro. Actual intervention is expected (again) in the S. Korean won and else-where.
We continue to think the dollar has a fighting chance at holding up. Next week’s payrolls are key, but before then, if a good PMI can get only a 50 point bump, we are not impressed. The euro will struggle to recover.
Note to Readers: We will not publish any reports starting next Thursday, July 31 to Wednesday, August 6. It’s the first time in over 20 years we will not cover the payrolls report. Remember: spikes, often two-way. Stay away,
This morning FX briefing is an information service, not a trading system. All trade recommendations are included in the afternoon report.
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