Bankfurt summit to boost USD
By Peter Rosenstreich
Tomorrow will see central banking’s heavy hitters up to bat in Frankfurt. Janet Yellen of the US Federal Reserve, Mario Draghi of the European Central Bank, Mark Carney of the Bank of England and Haruhiko Kuroda of the Bank of Japan are scheduled to address ‘communication challenges’ at a conference held at the ECB’s headquarters. We think the upshot will be a bullish outlook for the USD, based on policy divergence and yield steepening. A low-yielding G10 and high-beta emerging market currencies look especially exposed.
Central bank guidance is as clear as mud. Economic outlook remains positive: favourable macro conditions with subdued inflation suggest that tightening money won’t happen yet except in the USA, which likely has an increase coming in December. Yellen and her successor Jerome Powell must remain ahead of the inflation curve. Meanwhile, headlines over a struggling US tax plan will likely weigh on stocks and negatively affect sentiment on the dollar.
Vicious cycle for the yen?
By Yann Quelenn
We may be at an inflection point for Japan: the border from a virtuous circle to a vicious cycle could easily be breached. Today all yen-watchers will be staring at Haruhiko Kuroda, Bank of Japan Governor, when he speaks in Zurich at 18.45 local time. How does he address the decade-long lack of inflation? The strategy remains the same: all-in.
The amount of money injected in this market should translate at some point into inflation. And this inflation is needed to kill the debt that was first incurred to create…inflation. Japan’s bankers and politicians hope inflation will run and kill debt which is now 250% of GDP.
On the data side, the Producer Price Index for October increased 3.4% annually and September was revised up to 3.1%. GDP for Q3, to be reported tomorrow, is expected to be down slightly from Q2. The national Consumer Price Index. Is expected to be up a bit in September with growing momentum.