On Monday night, the Bank of japan announces its policy intentions and consensus is for no change. The ECB remained on hold with promises of more liquidity to come so it is doubtful that Governor Kuroda would do anything ahead of the FED.
Janet Yellen solidified the quarter-point rate cut that the market is anticipating. However, it is a sad commentary that the previous Fed Chair feels compelled to proffer an opinion on the Wednesday’s FED announcement. Too bad Yellen wasn’t as forceful in advising Chair Bernanke when he cowered in front of the taper tantrum. (That is, avowing to stay the course and begin tapering its third round of quantitative easing.)
On Monday, the EUR/GBP cross reached the highest level in two-years as markets became ever more fearful of Prime Minister Boris Johnson initiating a genuine HARD BREXIT. Fear not as the Footsie 100 and British gilts are not signaling economic devastation for the U.K. The weakness of the pound sterling against its key trading partners provides a relief as investors will look to take advantage of a steep discount in British assets based on the cost of the currency.
There was a similar advantage in 2008 when the depreciation of the POUND mitigated the negative effects of the Global Financial Crisis. If the Greeks, Italians and Spaniards had a currency that depreciated when confronted with financial and economic crisis the duration of the pain would have been lessened. The bottom line is while pundits point to the British pound as proof of the ill-advised HARD BREXIT, I advise looking to other asset classes for an alternative view.
Speaking of EUR/GBP, I taped a segment with Anthony Crudele about how I’m currently trading gold, silver, the EUR/GBP and EUR/CHF crosses. Enjoy!
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Tags: BOJ, British pound, ECB, EUR/CHF, EUR/GBP, Federal Reserve, Hard Brexit, Janet Yellen, Kuroda
This entry was posted on July 29, 2019 at 6:45 pm and is filed under BOE, Currency, UK. You can follow any responses to this entry through the RSS 2.0 feed.
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July 29, 2019 at 7:07 pm |
EUR/CHF is interesting; seems pretty tame for currency trading. I’m at the point where the Muni CEFs that I like and have traded a couple of times beginning with the Taper Tantrum (thank you), then selling when 30% Cap Gain over balanced the 5% tax free income, believing there is always another opportunity to get in. There was, I’m in and sitting on < 30% it seems the Fed is playing the tune for Cap Gains again.
Will EURO begin to strengthen, and if so, will it be a signal to rotate into EU equities and maybe look to emerging markets? Well, what would cause the EURO to strengthen vs US$?
(Chess must be easier)
Gold – I'm in. Miners might be late to get in, but if the metal goes, the miners will possibly be seen as gaining longer term.
Yes, Yellen should 1 get a job or 2 butt out and shut up. OH! maybe she has a book about to come out….. I'll give 3:2 on that.
July 29, 2019 at 8:39 pm |
I watched and learned from the taped segment with you and Anthony Crudele. Thank you!
July 30, 2019 at 1:23 am |
YRA-As a total ignoramus as to trading ( short term for me in equities is one year) I have a question after watching the Crudele segment which was very interesting. In the EUR/CHF, with the SNB in effect a giant hedge fund, how does this figure in the value of the Swissie? If the kicked can disappears (as was “metaphored” on the video, ) and stock markets crash, how does that currency fare on its own and against the EUR hedge?
July 30, 2019 at 8:11 am |
Asherz—typically the Swiss would be a secure safe haven and rally but with the SNB intent about defending ,meaning keeping the currency stable versus the euro,it will mean a large seller of swiss francs confronting those buyers.The problem has now evolved that the SNB is a gigantic hedge fund with a printing press.When the swiis franc has weakened recently it seems that the SNB actually sells stocks and then taking “profits” purchases it own currency to lighten its balance sheet—an iteration of QT
July 30, 2019 at 9:04 am
An interesting iteration at that, considering their stocks have only gained value? In order to lose to win, they’ll have to buy (print) more?
I guess BOJ has done similar, the FED appears to be selling assets and voilà $US shows it?
July 30, 2019 at 9:07 am |
From Catch-22
Yossarian:
Those bastards are trying to kill me.
1st Lt. Milo Minderbinder:
No one is trying to kill you sweetheart. Now eat your dessert like a good boy.
Yossarian:
Oh yeah? Then why are they shooting at me Milo?
Dobbs:
They’re shooting at everyone Yossarian.
Yossarian:
And what difference does that make?
Dobbs:
Look Yossarian, suppose, I mean just suppose everyone thought the same way you do.
Yossarian:
Then I’d be a damn fool to think any different.
Substitute Powell for Yossarian, Mario for Milo and Karoda for Dobbs
then change killing to cutting rates, and for me you have the only reason rates are being cut. Everyone is following the BOJ down the rabbit hole. ZIRP and QE have become, in Kantian terms, a categorical imperative for the central bankers. I agree with Mike Temple gold is the only place to hide from the madding crowd but I also agree with Marty Zweig- don’t fight the Fed and more so Keynes- markets remain irrational longer than one can remain solvent. So likely the equities will continue upwards until they don’t and then the markets will have their Wile E Coyote moment. As Art Cashin says remain nimble (and the ice cubes don’t stand a chance)
July 31, 2019 at 4:15 pm |
Bigman–this was a HELLER of a post.It is amazing that GOLD was sold after the Powell Press Conference but it did unfold as we expected–so irrational it is but we did get our answer to does Trump Tariff’s supercede Fed data collections—if you had any doubts the air was cleared today—Catch 22 is the way that Trump now has trapped Powell and Mario Draghi is aiding and abetting the entire process
July 30, 2019 at 10:57 am |
Great perspective Yra, with a couple of Fed twists from me…
First of all, it is a sign of the times that Powell’s predecessor was compelled to comment… ‘the medium is the message’, and while Trump may be the most pugnacious tweeter, everyone feels like they
need to voice an opinion. Social media is destroying the minds and social norms of the developed world, just as McLuhan predicted: http://bit.ly/2KCuNOK
And as far as Yellen not saying anything about Bernanke’s panic on the Taper Tantrum, where was everybody in mid-2012 when Schumer spooked him into entering into the total distortion of QE3 (Buzz Light-year Bernanke’s own personal “To Infinity and Beyond”)? http://bit.ly/2GyD7zF
He rightfully should have kicked the problem back to Congress that was failing to agree on fiscal policies that would have assisted the economy, and let them know that any recession would rightfully be their fault if they failed. It would’ve been much better than the balance sheet bloat that ultimately did little to help the economy.
But when was the last time we really had a Fed Chairman who had those kind of cajones in handling the politicians? I’m thinking it was the legendary William McChesney Martin… https://en.wikipedia.org/wiki/William_McChesney_Martin
How about you?
Best-
Rohr
July 30, 2019 at 7:36 pm |
Another good segment with Anthony.
As mentioned: /GC Bullish above 1411 which was tested Thursday and found a bid. 1440 was also considered a level that Buyers needed to regain for continuation to a 1470 target; however, I’d anticipate a pullback in search of add’l Buyers before extending higher.
/ES is also holding its bid as anticipated. IF they sustain bid through highs, then 1340 anticipated target.
Like most, just awaiting the Fed day games 🙂
My .02
July 31, 2019 at 10:53 am |
Yra,
This is not a trading question but rather to get a better understanding of what you are thinking:
IF ,,, Draghi were to go “BOJ” or “SNB” in Sept. do you have any thoughts on what he might buy?? Does he go all the way and buy stocks or just stick with bonds???
July 31, 2019 at 4:19 pm |
Trader–if he follows the reprehensible recommendations of Fink and reider he will probably begin buying financial stocks–especially the banks that he has done so much harm to—in the same vein as trump subsidizing the farmers he has done so much harm to by destroying their access to China which they have spent 40 years developing..in the Parlance of Wilbur Ross Trump has eviscerated the GOODWILL part of the farm sector financial statement
July 31, 2019 at 10:57 am |
Trump vs FED — at what point does Trump start tweeting the FED looks like a bunch of ‘chumps’ vs BOJ/SNB for only buying USA bonds?? Right after Draghi in Sept.???