This is a week loaded with data. The U.S. retail sales numbers are reported tomorrow and it will take a tremendous increase in consumer purchases to put any pressure on the June FOMC meeting to raise rates. Currently, the market consensus is for a 0.4% increase in core sales and I would venture a guess that it will take an increase of more 1.0% to move the needle on any talk of June being on the table. There are several British inflation numbers released tomorrow morning but with the Brexit vote next Thursday and a Bank of England meeting this Thursday there will be no change in BOE policy. Wednesday of course brings the FED and again the retail sales number would have to be very robust to move the FOMC. It ain’t going to happen. Wednesday night and Thursday morning brings the Bank of Japan and the Swiss National Bank into focus. These two banks are more interesting as the recent strength in the Swiss franc and the Japanese yen provide some rationale for each of these banks to increase monetary stimulus to drive the respective currencies lower . However, both the BOJ and SNB will be careful not to roil the markets ahead of the BREXIT vote. Yet the Japanese seemed to be perturbed over the G-7 signaling its anger at the Japanese for its previous efforts to weaken the YEN. The Japanese authorities are not happy with the recent cut in Korean interest rates which have resulted in a weakened Korean won.
Also, the euro/yen cross has reached three-year lows as the yen has continued to gain in value against the EURO,where Mario Draghi’s ECB has intervened. The most interesting cross is the CHF/JPY (Swiss/yen). This cross is currently below the January 15, 2015 level when the Swiss shocked the market and announced it was no longer intervening to maintain the 1.20 peg on the EUR/CHF. The low that week was 114.09, meaning it took 114 YEN to buy a Swiss franc. Today it takes 110 yen to buy a Swiss franc. The Swiss were again noting that the currency was overly strong against the euro because of the Brexit vote fears. (The EUR/CHF has now closed below the 200-day moving average for the third consecutive session.) BUT if the SWISS is overvalued (SNB WORDS) then the YEN is extremely overvalued by a similar metric. The YEN has retraced all of its losses against the Swiss from the day of the massive Swiss franc rally. Both the YEN and CHF are considered haven currencies and react to risk-off environments.
With the recent slowdown in Japan and the drop in the Nikkei index, the Japanese authorities must be getting nervous. The Japanese bond market is being shunned by large financial institutions as Japanese sovereign debt is yielding negative interest rates. I wonder if the Japanese act unilaterally and mimic the SNB by purchasing large amounts of foreign assets. The G-7 and the Chinese would frown upon this, but if the SNB can continually intervene by purchasing foreign assets then why not the BOJ? The SNB and BOJ statements will be very interesting. Look for nuance from the BOJ because Abe and Kuroda will be careful ahead of Brexit.
***Let 100 Brexit Polls Bloom. In a previous post I issued a warning about the volatility that will be caused by the proliferation of polls by public and private organizations over the BREXIT vote. Every day we get new polls showing the rise and fall of Brexit and every change brings violent movement across a broad range of asset classes. The British pound appears the most sensitive to the latest poll but it has the ability to move the YEN, SWISS, GOLD, and, of course, the SPOOS. The most interesting asset is the British gilts, which are testing record low yields made on February 11. If the BREXIT vote prevails then why are British bonds which are not part of the ECB purchase program retaining the recent rally? If the Brexit vote was really so detrimental to the future of the U.K. then the GILTS OUGHT to be getting SOLD. With every POLL indicating an increased propensity to leave the EU the GILTS make me question the reliability of all the statistical data being broadcast in social and corporate media. Again, TRADE WITH FERVOR,INVEST WITH FEAR.