Quiet Tuesday, Follow The Leader

Politics seems to dominate the talking points today. Boris Johnson’s weekend op-ed has been rejected by May, and there is talk that Johnson may resign or fired. Sterling is consolidating after pulling back yesterday.  

Carney said that if the UK does hike it will be gradual and limited. The markets did respond dramatically to the BOE minutes and suggestions by even some of the doves that rates may need to be lifted, but there is still a good reason to be a little skeptical. Carney has intimated the same thing several times during his tenure, and the base rate is lower now. It is possible that buying a few more months can see price pressures peak..

Japanese politics is also front and center. Abe says he will decide whether to call a snap election when he returns from the US, where is headed soon for the UN. The yen’s weakness looks more a function of the rise in US yields. The 10-year yield had reached almost 2% before rebounding and now is a little above 2.2%. The Nikkei’s nearly 2% rally may have also been partly a little catch up after being on holiday on Monday.

The New Zealand dollar is recouping yesterday’s losses. The election on September 23 is still seen as too close to call. It could very well turn on the performance of smaller parties as a coalition government looks necessary. New Zealand reports Q2 GDP figures. Some are suggesting that it could be the key to the election. The economy expanded 0.5% in Q1 and is expected to have grown a bit faster in Q2, though the year-over-year rate may not improve from the 2.5% year-over-year pace.   

There are some notable option expires today. The euro has options struck at $1.1950 (648 mln) and $1.20 (500 mln). There are options struck at 111.50 ($382 mln) and the New Zealand dollar at $0.7295 (378 mln).

The FOMC meeting gets underway today with the outcome announced tomorrow. Ahead of that, today the US reports August housing starts, which should recover a bit from July’s unexpectedly large 4.8% decline. The impact of the hurricanes will likely distort the time series starting in Q4. The Fed’s challenge setting the appropriate monetary policy for the economy is all the more difficult if the economic data becomes distorted.