Jeff is leaving the building

The day is finally here and today is my last markets note for OANDA. Like Elvis, I will be leaving the building, and it seemed appropriate that today’s title image is of me in my Elvis Presly jumpsuit. It was lovingly made by Happy Harry’s Tailors in Singapore, with Mrs Harry hand sewing the sequins. I highly recommend this lovely couple for all your tailoring needs, regardless of gender; Harry even does kilts.

I would like to thank and acknowledge all my colleagues at OANDA, which is a great company to work for. Most especially, my fellow analyst team members in New York, London and Tel Aviv, Ed, Craig, and Kenny, as well as my direct overlords in the management reporting tree, Darren and Dana. I shall miss you all.

To the assembled journalistic army of the financial markets and beyond, upon whom my writings have been foisted, thank you all for your tolerance. After three-plus decades in the markets, I’ve seen a few “cycles,” which look remarkably like a lot of men (it’s mostly men) making the same mistakes as the previous generation while uttering “this time it’s different”. I have witnessed an entire global industry arise with the purpose of making the great game seem a lot more complicated to the “non-expert” than it really is. My writings and media appearances have always been an attempt to “clear the fog” and to tell it like it is in an approachable manner for everyone, not just those in financial markets and political ivory towers. Thank you all for allowing me the opportunity to do so in writing, in forums, on radio, and on television as “the voice of reason.”

As for me, I saw a Harvard Business Review (HBR) YouTube that said you need to disrupt yourself before you get disrupted. It’s the HBR, so like the Fed, it must be right. I am planning to disrupt myself, heading into journalistic academia for a year in a distant land called Wales. Apparently, the people there speak an unusual version of English, and a stranger local language lacking any vowels. It is mountainous, sparsely populated, girt by sea and river, has a small capital city, cold winters, many sheep, and a passionate population frustrated by the performance of their national rugby team. As a Kiwi, I will feel at home there.

And now, on with the show.

With the Pelosi show having also left the building, the impact of China’s admittedly extreme sabre rattling appears to be also passing. Asian markets seem to be pricing in the missiles flying over Taiwan in much the same manner as North Korean missile tests. A few wobbles in Seoul and Tokyo and then back to business as usual.

After a few days’ holidays, my initial impression is that Asian markets are looking at another night of tumbling oil prices and soft commodity prices as a much more positive longer-term driver than short-term noise from mainland China. A weaker US dollar will also be cause for cheer for the region, although that story has been confined to the major currency space thus far, with Asian currencies yet to find much support from it. That said, inflation data today from Asia suggests that the regional inflation lag is loitering and in some cases, playing catchup.

Assisting the US dollar fall overnight was the Bank of England, which hiked rates by 0.50%. As ever, it is what the central bank said, and not what they did, that had the greatest impact. The BOE remained hawkish, saying the UK inflation could hit an eye-watering 13.0%. But the BOE also sounded a loud warning about both the UK and the international economy, signalling a bitter recession was on the way. The BOE has been the most straight-talking of the G-10 central banks for a long time now, but on a slow US data night, it was enough to see energy prices and the US dollar tank. Oddly enough, most of the US dollar losses were made against the euro, surely the ugliest horse in the glue factory right now. I am at a loss to explain this.

Today in Asia, the South Korean Current Account for June improved to USD 5.61 billion, boosted by falling input prices, while Japanese Household Spending sharply outperformed in June, rising by 3.50%. That will give the Bank of Japan some cheer after 20 years, suggesting that inflationary forces are finally doing their job after decades, convincing Japanese households that goods won’t be cheaper next month than this month. 2022 continues to surprise me on many levels.

Philippines Inflation YoY for July rose to 6.40%, well above the 6.20% expected. That should ensure the central bank continues its hawkish pivot and may give some support to the beleaguered peso. Indonesian GDP YoY for Q2 outperformed impressively, riding recovering consumer demand and robust commodity prices as it climbed by 5.44%. USD/IDR remains uncomfortably near 15,000.00, but with inflation also rising at a decent pace now, the stubbornly dovish Bank Indonesia may also be nearing a hawkish pivot, supporting the rupiah. Thailand’s Inflation YoY for July printed at 7.61% this morning, only marginally lower than last month, keeping the pressure on the Bank of Thailand to keep hiking.

The Reserve Bank Of India announces its latest policy decision this afternoon, the most anticipated data point in Asia today. Markets forecasts are for a 0.35% hike to 5.25%. India is ahead of the rest of Asia on the inflation front. Inflation rose there far sooner and by more than in the rest of Asia, which is now clearly playing catchup. Ironically, with RBI policy rates and India inflation moving closer together, the RBI may have more room to be a little softer on rate hikes. However, I remain in the 0.35% to 0.50% camp as the Indian rupee remains one of the region’s worst performers. The joys of stagflation.

All roads lead to the US tonight, though, and the week’s data highlight the US Non-Farm Payrolls. Despite all the recession doom and gloom in the US, with the housing market under stress and stubbornly high inflation, not all the pieces have fallen into place. Nor is there actually any unity in the market about the trajectory of US growth or inflation. US ISM Manufacturing was robust earlier this week, consumer spending is holding up, and the labour market appears to be remaining as tight as ever.

A weak US Non-Farm Payrolls this evening will give ammunition to the riders of the apocalypse if labour market weakness is finally seeping through in tier-1 data. Despite some very hawkish Fed speakers this week, a soft number probably sees US yields and the US dollar fall, while somewhat perversely, US stocks will probably rally due to the former. A US recession being good for stocks, apparently. Conversely, another surprise upside release is likely to have the opposite reaction, at least in the short term, as it reinforces the Fed speaker’s hawkish rhetoric.

China releases its July Balance of Trade over the weekend, expected to print at around a USD 90 billion surplus. That data is unlikely to shake the tree too much. Far greater risk lies in the geopolitical sphere, and the property sector slow moving trainwreck, as well as the usual covid-zero risks. For that reason, and with US data and the weekend ahead, the animal spirits of Asia may be tempered today, with quiet days on equities and currency markets.

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