Notes From Underground: After the G-20 and Nonfarm Payrolls, There’s Laborious Trading Ahead

As we bid farewell to the dog days of summer, here are some issues that will set the agenda for the month ahead:

1. Friday’s employment data made the picture murkier for the FOMC meeting later this month. The nonfarm payrolls were on the weak side, and, as Art Cashin correctly pointed out on CNBC, the bigger issue was a drop in the hours of the work week, which when measured in terms of jobs gained/loss resulted in a loss of 300,000 jobs. The FED jaw flappers keep orally pushing for a rate hike on September 21 but this jobs report clouds the issue.

The talking heads report ad nauseam that several Fed members believe a rate hike possible but as I wrote last week, if the fed funds rate is not raised the critical component of the FOMC release will be the outcome of the vote. If Stanley Fischer doesn’t vote for a RATE HIKE then HE SHOULD RESIGN FROM THE FOMC. It is that simple for if Chair Yellen prevails in achieving another 9-1 vote then it is without question Yellen’s FOMC and all other ivory tower mouthpieces should remain silent. The Federal Reserve Board is under mounting criticism due the inconsistency of its members’ public pronouncements. The FED‘s credibility is being called into question, a potentially disastrous  situation in a FIAT CURRENCY SYSTEM.

2. The G-20 meeting presented great selfies and photo-ops but little else. THIS MEETING REFLECTED THE STRAINS IN THE GLOBAL ORDER WHICH HAVE BEEN “PAPERED OVER” BY THE CENTRAL BANKS. Japan set the tone of the meeting by releasing a paper to the G-20 warning the world and especially Europe about the negative fallout from an acrimonious end to the BREXIT negotiations. Japanese corporations have massive investments in British capital projects and if British exports are to be penalized then Japan threatened to remove production and jobs from the U.K. and other European centers. I THINK THE JAPANESE WANTED TO SEND A MESSAGE TO ALL THE PARTIES IN THE BREXIT DISCUSSION, BUT MORE IMPORTANTLY, THIS WAS JAPANESE OFFICIALS RETALIATING FOR BEING SINGLED OUT AS A CURRENCY MANIPULATOR AT THE PREVIOUS G-20 MEETING. Japan prevented the Chinese from making them the focal point … yet again.

Before the release of the G-20 Communique, the U.S. and China held a bi-lateral meeting and one of the main issues discussed between Presidents Obama and XI was foreign currency movements. A fact sheet released after the meeting said, “China and U.S. Agree to Refrain From Competitive Currency Devaluations.” It may be a major political victory for the Chinese if the U.S. Treasury was deemed to be a serial currency manipulator in a similar vein of the PBOC. And this would be a serious blow to U.S. prestige. The actual language of the final communique was generic and sanitized: “We affirm our previous exchange rate commitments, including that we will refrain  from competitive devaluations and we will not target our exchange rates for competitive purposes.” This is nonsense of the first order for as many critics of the Fed and ECB have argued over the previous six years: QE POLICY is a domestic monetary program with a weakened currency as a desired outcome. The G-20 reference is mere political posturing for the domestic constituency.

3. The Reserve Bank of Australia and the ECB have scheduled meetings this week. Tonight at 11:30 CDT the RBA will announce its interest rate intentions. The consensus is for no change from its current 1.5% overnight cash rate. The Aussie dollar is very weak against the Kiwi dollar, its main trading partner, so I’m in agreement with consensus. The important point is that it’s Governor Stevens’s last meeting and what he says about the Chinese economy should be of interest. THURSDAY will be an important day as Mario Draghi will hold a press conference following the ECB’s meeting. President Draghi has been very quiet of late and has allowed his underlings to speak about policy. Draghi didn’t even attend the Jackson Hole Conference. The European economy is sputtering. Italy is facing a November referendum. And, more importantly, German Chancellor Merkel’s CDU party suffered a miserable election result on Sunday with the anti-Euro AfD party garnering the largest increase in support.

The media paints the AfD success as a response to an anti-immigrant agenda. There may be an element of fact in that but the German middle class is raising its voice against the FINANCIAL REPRESSION  foisted upon German savers as a product of ECB policies. If President Draghi is threatened by German domestic politics look for an increase in the ECB QE program to 90/100 billion euros a month from 80 billion in an effort to build the ECB balance sheet, weakening the euro and simultaneously pushing borrowing costs lower. Draghi is a man in a hurry as the political winds turn against the ECB. The problem for Draghi is that the  massive QE programs promoted by Bernanke and the BOJ have failed to have the desired effects. Bloated balance sheets for the sake of bailing out debt-stressed nations provide political fodder for the anti-euro political tide rising across the EU. Mario Draghi has grabbed unlimited power for the ECB, BUT FOR HOW LONG? Yes, our work has just begun.

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17 Responses to “Notes From Underground: After the G-20 and Nonfarm Payrolls, There’s Laborious Trading Ahead”

  1. ShockedToFindGambling Says:

    Yra- You “covered the Waterfront” with this post.

    The FED governors will never learn…..they should just stay quiet until they’re ready to tighten and just do it. They say the same thing every time,,,,,,they will tighten when the data dictates it.

    The markets can interpret the data far better than the FED can.

    • yra Says:

      Shocked–or maybe johnny friendly—i could have been something with this post–but when will they ever learn when will they ever learn.They just keep the raining confusion on the market—it is time to sit back and let some of the policies just carry on—Draghi will do whatever they need and he is again the most dangerous man in the world as he grabs more and more power—-the rise of the AfD will shake Europe and it is far more then xenophobia

      • ShockedToFindGambling Says:

        Yra- The FED has my SPOO shorts on “a one-way ticket to Palookaville”.

  2. Ron Ferrill Says:

    I’m still trying to figure something out. If the EU is not a sovereign country and can’t “tax” in its own right, how can the ECB buy bonds? Of course how can the Nomenklatura tell a sovereign nation who they should have taxed and how much?

    Is it the case that buy making up money out of nowhere to buy bonds that all money is being debased? How can we get a handle on how much each currency actually is worth – oh, of course it’s all about with relation to what…. hmm…. still confused.

    Better a confused heart than a rotten one, I guess

  3. John Brady Says:

    Becoming more interested in watching the cross-currency basis swap market, which represents the true cost of the world’s reserve currency, the USD, in foreign currency. There are signs that the cost to raise USD in offshore markets (think Eurodollar market) is moving higher and may soon gap higher given the amount of high-grade collateral that is no longer eligible for repo or financing markets. Why all of the hostile and public bickering from Chinese officials towards US (White House) officials this weekend? …My hunch? The cost of raising USD in CNY is soon going to go parabolic, and the Chinese know it. It could be a post-election trade, but Fed or no Fed, the true cost of raising or borrowing offshore USD internationally is going higher…

  4. Joe sullivan Says:

    Yra……from your perspective, is their a point in analyzing economic data when the data is like a moving target?…….is all based on nominal data points?

  5. GreenAB Says:

    “The media paints the AfD success as a response to an anti-immigrant agenda. There may be an element of fact in that but the German middle class is raising its voice against the FINANCIAL REPRESSION foisted upon German savers as a product of ECB policies”

    Yra, sadly the media is 100% correct.

    It´s all about the refugees. There is a real hysteria going on over here, even after the inflow of refugees slowed down sharply after the closing of the Southern EU borders and the deal with Turkey. The German middle class is all about fear, which is befueled by the AfD rhetoric. Angst about the unknown, about Islam, about crime, about losing what they have. It´s irrational since Germany´s finances are fine and no taxes have been raised, no benefits have been cut, no above average crime by refugess and so on. Quite the contrary – retirement benefits rose 5% this year, the minimum wage will go up by 4% next year and the money spent on the refugees boosted our GDP by 0.3-0.5%. No need for austerity since taxes are doing well. The budget is BALANCED (even with additional 20bn for the refugees)!

    As for Draghi or the ECB – unfortunately there is NOTHING in terms of a public debate, let alone outrage about the robbery of the savers. This issue is almost not present in German media or in discussions of politicians or the people. Even the AfD doesn´t care.

    Imo it´s a sign, that Germany is well off. Usually voters care about the ecnomy, jobs, healthcare, education – nothing at all. this time refugees, refugees, refugees…

    It really saddens me that a part of the country is going into the direction of right wing populistst. And i fully support the CDU-SPD administration.

    • yra Says:

      Green–I always welcome your input as our boots on the ground.But it seems that over the last year Der Spiegel–English on-line-has continually hammered on about the repression of savers.In the U.K. anti-immigration stole the headlines because it was being soldas a victory of the narrow minded over the enlightened–but history reflects that it is always about the money

      • GreenAB Says:

        You´re correct about Der Spiegel, Yra – it´s on my daily read list. Yet while here and there a newspaper reports on the ECB issue, it doesnt´get to the people. Whether i talk to friends, relatives, read in social media, watch talkshows, study polls… almost non existent.

        In all about the unknown and the fear of change. which in part is about money. but a part of German people just doesn´t want foreigners living next door. sad but true.

      • yra Says:

        Green Ab–as always your input is first rate—keep up the dialogue as this issue will certainly heat up in the months ahead.But Draghi is aware of the changing nature and remains in a hurry to load up the ECB balance sheet–watch for Weidmann and Otmar Issing to raise their voices in opposition to the ECB policy

    • SacredReich Says:

      “…part of the country is going into the direction of right wing populistst.”
      This is no surprise direction-wise, only time-wise. After the mismanaged social-econ earthquake in the East following the so-called re-unification just that was bound to happen; in the 100 souls municipalities there were ever quite other, disconcerting developments. Tinder…
      May time heal all wounds:
      See— most (all?) people here speak about Wiedervereinigung; but what I see and what I felt back then was sort of Vermischung/blending (“wir vermischen, aber vereinigen nicht”, the English “blending” captures it very well with its two meanings Vermischung und Verblendung). Think, in a broader sense and under other circumstances, of the genuine and realized Versöhnung of the lovely Swissies in the 19th c.
      We don’t know our own “Einigungsvertrags”-county and I wholeheartedly agree with you: it saddens me too. Disappointing but unsurprising.
      “Go take your sister then by the hand
      Lead her away from this foreign land
      Far away where we might laugh again
      We are leaving, you don’t need us”

  6. Arthur Says:

    Gillian Tett, a columnist at the Financial Times, suggests that another 2008-style crisis may be coming. Asset prices are inflated and debt abounds, especially sovereign debt. But what could pop a government-bond bubble? There are two possibilities: default and inflation. Neither seems imminent. A dire outcome might emerge eventually. But unless it is about to happen, the comparison doesn’t stand, writes The Economist

  7. GreenAB Says:

    As always Yra – i appreciate your insight. This posts enlighted me about the G20 rumbings – thanks a lot! I don´t want to lecture you or the readers about Germany. Just trying to give you my impression, what moves people over here.

    What i realized over last few weeks – we´re living in a capitalist society. Yet central banks – public entities – own more and more private assets. And nobody even tried to reverse CB balance sheets. Which leads me to the question: is the endgame privatization? That would be quite ironic.

    • yra Says:

      Green–interesting but as we can see from Jackson Hole there is no desire to shrink the balance sheets of central banks–see Jeremy Stein’s paper and the recent blog post of Ben Bernanke

      • GreenAB Says:

        correction: “is the endgame privatization?” should read “DE-privatization” – the endgame of capitalism? The BOJ and SNB aren´t stopping their ETF/stock shopping spree. so when the next crisis hits – will central banks buy ever more so that they become majority owners of the biggest corporations in the world? do they even realize the path they´re on?

      • Chicken Says:

        So what is the endgame and what are the potential consequences and implications, for whom? Government as a majority owner means the people own these assets instead of Wall Street, no?

  8. Richard H Papp Says:

    Many investors follow the pattern of the Dow Industrials and Transport Averages. I note the failure of the latter to get thru the
    closing reaction highs off the winter 2016 lows. That is, the July recovery closing recovery high of 8.015.93 and the April recovery
    closing high of 8,109.19. Lets not even mention the bull high of
    12/14 of 9,217.44. So, we have very obvious nonconfirmations.
    I believe this bothers a lot of investors and they react accordingly.

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