The World Overall

One Financial | Andrei Wogen| finance.wogen@gmail.com|For the Week of: 06/21

Last Week in Review

USD On the whole, last weeks FOMC decision on rates came as
expected with no change. But the tone of everything else, the statement,
Yellens press conference and the dot plots as well as the Feds
economic forecasts, were mixed at best and what I saw as more dovish
than I and many others were expecting. Inflation forecasts were left
unchanged but raised for the next couple of a years by a tad while GDP
forecasts were lowered for this year and the next two following. As for
the dot plots though, these were a good bit lower than previous with
even the most hawkish member pointing to lower rates by the end of
this year to below 1% and also lowered next years forecasts as well. As
for Yellens presser following the rate decision, her main message:
watch the data cause we will be too. Time and again Yellen reiterated
that the path the Fed takes on rates hinges on what the data is doing not
on when the market is expecting rate hikes or anything of that nature.
Because of this too, there was no real commitment as to when rates
could or will be raised as she said that rates could rise in September,
December or even March. The Feds decision on rates she said depends
on, you guessed: the data. So keep your eyes and ears peeled and
cleaned out cause the data is important and more so too than I think the
market gives it credit for. Yes, the members of the Fed and what the
have to say is important but on the whole they wont be moving till the
data moves in the right direction and looks like it is sustained to the
upside. So dont count on any moves in rates or the Fed members
overall tone, via their vote at the meetings, until the data is showing a
good and sustained improvement. So.speaking of the data we also
had CPI data last which, despite the rise in energy and gasoline prices,
came in a bit on the weaker side for the month of May. This includes the
Core reading which has been persistently and steadily high over the
past few months. This is definitely an area to watch going forward.
EUR As for data last week, Final CPI data for the Euro Zone came in
unchanged for the month of May. On the whole then it would seem that
the inflation picture is stabilizing though continues to remain low
overall giving yet more reason for the ECB to continue and complete
their QE program. The other piece of data last week that got the
markets attention was both German and Euro Zone ZEW sentiment
numbers which both took a dive lower. This will be watched to see if
this is sustained or not going forward. As for the events last week, the
European Court of Justice ruled that the ECBs OMT program is legal
and that it can go ahead using it. This also pretty much gives a go ahead
to the ECBs QE program too as both the OMT and QE are the same
with a few minor differences between them. The other big event last
week was the ECBs TLTRO take up amount which came in at the midrange of expectations. On the whole the TLTRO auctions have been
going well but there is still little indication that this money the banks are

getting are filtering through to the broader economy and so this will be
watched for. Other than that, the Greece saga continues which is talked
about below while the Euro continues to be underpinned and continues
to rise. A couple of different reasons I think that this happening despite
everything happening with Greece. The first is that, with Greece
anyway, the markets are not at all concerned with contagion if all goes
to pot with Greece. The reforms and restructuring of the financial
markets and in terms of risk management by both banks and many
financial institutions not to mention with the ECB very active within the
financial markets themselves (via QE) the risk for contagion if Greek
banks end up imploding is very limited at this point. However, in my
opinion I think that this lack of concern of contagion is a mistake both in
terms of the financial markets but also and especially in terms of the
political and social contagion risks that exist if Greece does leave the
Euro Zone or at the least, defaults. The second reason, going back to
why the Euro continues to be strong, has to do with it being the favorite
for use as a funding currency now. With rates being so low now in the
Euro Zone, like the Yen, financial institutions, businesses and investors
alike are favoring the Euro as the currency of choice for loans and other
financial transactions. This type of activity is helping to keep the Euro
underpinned at this point and this will likely continue until risks
surrounding the Euro Zone with Greece and so on increases.
Greece The grind continues as Greece and its creditors continue to
hash it out. Both sides continue to sound testy and insistent that neither
side will budge. A meeting this Monday between Merkel and Greek PM
Tspiras will be very important and could be the beginning a new deal or
the end of Greeces time in the Euro Zone.
RUB The central bank of Russia cut its key rate yet again by 100bps
to help stabilize both inflation and the FX markets after last years rout
of the Rouble. The central bank has now cut rates by 550bps this year as
it rolls back its 1500bps hike they did last year in rates. The Central bank
also said that there are persistent risks of a considerable cooling in the
economy as unemployment continues to rise, wages continue to decline
and new orders and production capacity both continue to fall. Capital
investment and consumer spending also connotes to decline. This
weakness in the Russian economy comes largely from lower oil prices
combined with sanctions that were recently extended by another six
months by the EU and the US. I dont expect therefore that the Russian
economy will stabilize or improve much or at all until those sanctions
are lifted.
GBP Inflation data last week continued to show declining prices in
the UK pushing back rate hikes even further in my opinion. But this
lower inflation is an interesting anomaly given the continued rise in
wages which was also shown once again last week as jobs data last
week came in strong overall though a bit off of expectations. The jobs
sector though seems to be quite strong in the UK and this gives a good
case for higher rates going forward especially with those better wage
numbers. These higher wages and improving employment conditions
should help to improve the overall inflation picture as well going
forward. As for the BoE their minutes released last week, these really
didnt give any new info. The Bank still sees rates rising in the coming
months but with the UK economy weakening some right now (this does
not include the employment sector) the BoE is in the same boat as the
Fed, not enough good reasons to raise rates just yet.

AUD The RBA minutes last week showed that the central bank
continues to want to hold pat on raising rates as they want to watch and
see how recent rate cuts will filter through the Australian economy.
They also continued to say that the AUD needs to fall more and that the
housing market is strong. Two messages we have heard quite a bit of
already but to me tells me that something will likely be done and soon
especially with the AUD. Rate cuts are not the only tool the RBA has in
its toolbox as they have intervened in the Australian currency markets
before to bring it down. As for the housing market this is something that
has been addressed recently in the New Zealand and seems to be
helping some to bring down activity and prices to avoid a bubble
bursting. This is something I expect we will see soon in Australia
though the affects of this regulation on the housing market I expect will
weaken the overall Australian economy and, for its part, the New
Zealand economy too.
NZD First quarter GDP solidifies in many peoples minds that the
RBNZ will have to cut rates again at their next meeting as the growth
numbers came in much lower than expected and previous. This
weakness in growth was due mostly to the weakening commodity and
agricultural sectors both which have weakened quite a bit over the past
several months.
CAD Inflation data came in overall stronger than expected last week
which puts any calls for more rate cuts from the BoC on the back burner
for now. It would seem that the effect of lower energy prices has not
affected the price picture in Canada yet which is an encouraging sign if
you are the BoC. As for retail sales though this data came in lower than
expected continuing the trend lower in terms of year-over-year data
which tends to give a less volatile reading on retail sales data. So on the
whole then the consumer is looking weaker at this point and so
something to watch for improvement in terms of the overall economy
going forward.

What to Watch this Week

USD This week the final reading of first quarter GDP will be released
on Wednesday and will be a focus of the markets. Probably not as much
as the first two readings but since this is the final reading any revisions
to previous readings will be taken notice of especially in terms of what
full year growth could likely be. The other data to watch will be Durable
Goods data on Tuesday which will be key for year-end growth
numbers. Then to finish off the week we will get personal spending
numbers which will be a key reading given the worry over the US
consumer that is continuing both by the markets and the Fed. Up till
now the US consumer has wanted to save more than spend and this has
become a worry for the Fed as a weak consumer will and has meant I
think a weak US economy.
EUR This weeks data of interest will be monthly readings on the
manufacturing and services sectors of Germany, France and the Euro
Zone. Also, on Wednesday IFO sentiment numbers from Germany will
be in focus especially after last weeks ZEW numbers which showed
some weakness which surprised the markets. Also too, on Friday we
will get the preliminary reading of Germanys CPI numbers for June.
Another key indictor in light of dissipating deflation fears. Besides that,
Greece will be in focus yet again with a key EU meeting on Monday

being in focus. By all indications, the creditors and Greece still remain
far apart from each other and so there is still much work to do. As for
the ECBs part, they continue to support the Greek banks but this
support is waning I think. The Greek central bank called for an
emergency phone call for yet more money from the ECB for Greek
banks last Friday which is unusual as the decision on the ELA for
Greece banks is on Wednesdays. This just highlights though I think that
the Greek banks are fast moving towards the empty level. Deposits out
of Greek banks continue to increase and it is only a matter of time before
the Banks close altogether in Greece. Greece has until June 30th to get a
deal together as this is the time when the IMF bailout is set to expire.
The next deadline then after that will be payments that are due to the
ECB by the end of the summer. But if the ECB decides to pull the plug
on more money for Greeces banks then whatever money Greece owes
to the ECB will likely not matter.

Longer-Term Sentiment Indicator

Asset

Overall Sentiment

Strength Rating

US Dollar

Positive

Euro

Positive

Pound

Positive

Canada Dollar

Positive

Australian Dollar

Negative

-3

Japanese Yen

Negative

-4

New Zealand Dollar

Negative

-3

Economic Calendar
Region

Event/Data

New Zealand

Visitor Arrival

Euro Zone

Consumer Confidence

China

Expected

Date

Time (EST)

06/21

6:45pm

-5.8

06/22

10am

HSBC Manufacturing PMI

49.4

06/22

9:45pm

France

Services PMI

52.5

06/23

3am

France

Manufacturing PMI

49.7

06/23

3am

Germany

Services PMI

53

06/23

3:30am

Germany

Manufacturing PMI

51.2

06/23

3:30am

Euro Zone

Services PMI

53.7

06/23

4am

Euro Zone

Manufacturing PMI

52.2

06/23

4am

United Kingdom

BoE Inflation Report Hearings

06/23

5am

United States

Durable Goods Orders

0.2%

06/23

8:30am

United States

Durable Goods Orders ex. Transportation

0.4%

06/23

8:30am

United States

Markit Manufacturing PMI

54.2

06/23

9:45am

Germany

IFO Current Assessment

114.3

06/24

4am

Germany

IFO Expectations

102.5

06/24

4am

United States

GDP Annualized - Final Q1

-0.2%

06/24

8:30am

United States

GDP Price Index - Final Q1

-0.1%

06/24

8:30am

United States

Personal Spending

0.6%

06/25

8:30am

United States

Core Personal Consumption Expenditures Index y/y

06/25

8:30am

United States

Personal Consumption Expenditures Index y/y

06/25

8:30am

New Zealand

Trade Balance m/m

06/25

6:45pm

Japan

National CPI ex. Food and Energy y/y

06/25

7:30pm

Japan

Tokyo CPI ex. Fresh Food y/y

06/25

7:30pm

Japan

Tokyo CPI y/y

06/25

7:30pm

Japan

Unemployment Rate

3.3%

06/25

7:30pm

United States

UoM Reuters Consumer Confidence

94.5

06/26

10am

0.1%