Plus Ca Change, Plus C'est la Meme Chose .......

Wednesday 1st June 2016

 Plus Ca Change, Plus C'est la Meme Chose .......

ref :- " Dollar strength  --  All eyes are on the Fed in make-or-break month " , The Financial Times, Markets and Investing

Apologies for the unexpected break .... It's been quite a while (almost a month), and some things have changed a good deal. If stronger oil prices are no particular surprise, the friendly noises coming out of OPEC before their half-yearly meeting tomorrow in Vienna are less familiar and pretty unconvincing. Of course producers are happy with higher prices, but to this eye little or no progress has been made in relations between wealthy Gulf states and their down-at-heel partners such as Venezuela and Nigeria, never mind between Saudi Arabia and Iran. There are plenty of valid questions about the relevance of a divided OPEC in the modern era , but with prices remaining firm you're as unlikely to see anyone kick up a fuss over the next couple of days as you are to see anything of import emerge from Vienna.

The biggest change of course is the value of the US dollar, although as we write it's giving a bit back. After a mainly torrid year the Dollar Index posted gains of 3% in May, but why ? Viewed selectively, US data could be viewed as pretty robust (e.g. strongest consumer spending numbers since 2009). By extension and in a process that is anything but unfamiliar, that means that central bank watchers believe that the chances of a Fed rate hike at the June 14-15 meeting have increased. So in reality, nothing has really changed. Everything is viewed through a lens that distils its relevance to monetary policy. At one point on Monday, the probability of a June hike reached 30% after Friday's remarks from Fed Chair Janet Yellen that a rise in the coming months would be appropriate. That doesn't mean this month though, and that realisation may be responsible for the dollar giving up ground today as the chances of a hike slips back to about 15%. 

So, we'll need to keep four dates in particular firmly at the front of our minds over the next few weeks or so :

June 3, Friday : US Employment data  --  Non - farm payrolls due + 160,000, Unemployment rate due 4.9% , Hourly earnings m-on-m due +0.2% . Passably strong numbers will be needed to keep thought of a June hike alive

June 6 : Janet Yellen's speech in Philadelphia  --  Will she clarify her thoughts on the likelihood of a June move?

June 14 / 15 : Fed meeting and interest rate decision.

June 23 : Brexit Referendum  --   Many believe that even if the members of the FOMC had been keen to lift rates a week earlier, they may have postponed the decision to avoid creating turmoil in markets that would in all likelihood react extremely badly to a pro-Brexit vote. Incidentally, two polls actually had the Leave camp in front this morning. We need to be VERY wary of polls, especially as so many are still undecided, but to be sure a Leave vote is certainly possible.

So, in terms of central bank watching we've been here or somewhere like it many times before. Indeed, there's a good chance that if the Fed don't move in June the speculation in July will just as all-consuming. It may well be familiar ground, but don't make the mistake of thinking it will be dull. The stakes on so many fronts are much too high for that .....