Not only do we get a plateful of central bank meetings this week, we also get US CPI

Outlook

Today the calendar includes the NY Fed survey of consumer inflation expectations, among other secondary releases, and in earnings, Oracle. Mexico reports CPI.

Not only do we get a plateful of central bank meetings this week, we also get US CPI (Wednesday). Given the decent payrolls on Friday, the two together drove the probability of the Fed 25 bp rate cut to 87.1% (from 61.6% a week ago) in the CME’s FedWatch tool. But some glitches in payrolls (rising unemployment) or perhaps expectations the CPI will be sticky caused Citibank to dump its 50 bp forecast.

We still need to remember Mr. Powell’s use of the word “cautious.” And we have just 9 days to go. For what it’s worth, which is not much, Trump said on cable TV yesterday that he won’t try to unseat Mr. Powell.

Before then we get the RBA, BoC and ECB. The RBA is expected to hold but sound dovish, and nobody has a clue about the BoC. The ECB and SNB are seen as cutting for sure.  In Canada, Friday’s jobs report showed unemployment up to 6.8% from 6.5% and the participation rate up to 65.1% from 64.8% at the same time—but wage growth down to 3.9%, the slowest since April. The betting market expects the BoC to cut by 50 bp. We have doubts because of the Fed doing less. We can be sure the phone line is being used.

Only two things support any Fed rate cut at all—a tiny rise in unemployment and the Fed having set up the expectation. The argument for not cutting is actually more powerful—inflation still sticky and growth the highest of anybody else, 3.3% as of last week and another Atlanta Fed GDPNow due today. Given a different background, we would not be forecasting a cut but a pause.

Central Bank meetings

RBA December 9-10.

BoC December 11.

ECB December 12.

SNB December 12.

Fed December 18.

BoE December 19.

Bank of Japan Dec 19.

Forecast

Nobody knows whether the drop in US Treasury yields will persist, or even why it’s happening in the first place. It puts the dollar against a headwind even as others have the same experience. There is something going on with risk appetite that evades definition. You’d think the fall of two European governments, the nutso martial law mess in S. Korea and even the election of the reckless Trump would raise risk aversion and thus the dollar. And yet it’s not happening, suggesting something else is afoot to cause the euro to be bid. The winner, so far, is sterling. Today may not bring an answer and we should wait for turnaround Tuesday to see if the dollar recovers. The tipping point is all the way down around 1.0450.

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