Weldon's Money Monitor
Do a little dance...
What do these countries have in common ???
NO, they did NOT ... ALL ... beat the U.S. Olympic Men's Basketball team.
Indeed, ALL of these countries just experienced a change in monetary policy.
More surprisingly, there is NO 'continuity' to the changes, from country to country, and Central Bank to Central Bank, as Mexico, Thailand, the Czech Republic and Poland all TIGHTENED monetary policy within the last week, while Vietnam, Korea and Romania all EASED policy.
Moreover, the Brazilian Central Bank may tighten this week, while the European Central Bank is unlikely to enact any changes when they meet on Thursday. The Bank of Canada and the National Bank of Poland are both expected to bring-on monetary tightening at their next policy meetings, while the Bank of Korea is targeted as an easing candidate, again.
Additionally, we note the results of this morning's weekly T-Bill auction in the Philippines, where rates sky-rocketed ... against a background that included the lowest pace of GDP growth in over two years, as posted this morning for the 2Q.
Go figure, as the rate on the 364-day T-Bill screamed higher to 9.77%, a rise of 49 basis points over last week's issue.
In fact, ONLY 1.185 billion pesos worth of 364-day Bills were sold, versus the total offering of 3 billion.
Indeed, had the Philippine Bureau of Treasury placed all the paper on today's offering plate ... the rate rise might have reached triple digits.
In Romania today, the Central Bank cut its key short-term rate by 50 basis points, taking it to 18.75%. Of specific interest was the commentary seen within the MPC text...
... "The BNR assessed the recent evolution in the disinflation process, and decided to cut the central bank's intervention rate by 0.50 percentage points"
And in Vietnam ... state-run banks lowered the overnight Dong lending rate by 50 basis points to 5.0% ... while CB data released this morning revealed a HUGE net purchase of 1.6 trillion dong in domestic T-Bills executed by the CB over the last two weeks, flushing the system with cash.
SO ... WHY do we care about all this ???
Do things like Philippine debt auctions, Vietnamese state run bank activity, and Romanian interest rates ... really ... MATTER ???
They do, if we are to ask the BIG question ... does Hoofy hold out any bullish hope for the USD ???
The USD has been tap-dancing with thoughts of a bull run.
We have suggested that such might occur within the context of an intensified global disinflation trend.
We have offered the thought that Asian currencies are particularly vulnerable, thanks to HUGE capital inflow into local equity markets.
With that thought in mind, we find it MOST intriguing to note that last week brought about a TECTONIC shift in the macro-plates, one that FEW players even noticed. Allow us to elaborate using two key points to illustrate:
First ... Hong Kong posted their first positive yr-yr inflation within CPI, in SIX YEARS, during July.
Secondly, the Bank of Thailand raised short-term interest rates for the first time in over THREE years.
We find it TOO coincidental ... that the country that START kicked deflation into high gear, way back in 1997 with the devaluation of the Thai Baht ...
... raises interest rates from historic rock-bottom lows ... during the same week that Hong Kong posts its first inflation report SINCE the end of that same CRISIS lit by Thailand.
Is deflation then ... DEAD ???
Or, might signs of distress within some countries, even those tightening, be linked to the resurgence of disinflation, which is to be INTENSIFIED back to the point of becoming a risk, with global central bank tightening ???
OH OH OH ... Mister Kotter ... does Hoofy have an answer ???
Hoofy says ... look at the Philippines.
Hoofy says ... growth in the Philippines appears to have PEAKED, yet, interest rates are spiking higher.
Hoofy says ... bottom line ... the Philippine Peso is BREAKING DOWN.
Hoofy says ... do a bullish USD dance with the chart below.
Moreover, Hoofy, clearly suffering from insomnia ... notes that the Romania Leu is breaking down, AND, the key outside downside reversal week executed in the HSBC Romanian Stock Index last week.
Moreover, Hoofy notes the teetering in the Mexican Peso, following Friday's move by the Central Bank to tighten monetary 'conditions'. In fact, Hoofy says that Mexican flavored Peso has reached a point of 'cosmic' convergence. Could it be, that Hoofy is wearing Boo's tie-dye t-shirt, and within his USD bullishness looks in the mirror to see Peso bearishness ???
Note the cosmic convergence in USD-MXN (previous page), as a move below 1125 would be USD bearish, and a push above last week's high at 1140 would leave Hoofy dancing in the aisles with the shambles dancers in tie-dye heaven, amid MXN bearishness disguised as USD strength.
And then there's the Fed.
The Fed is fully expected to continue its monetary tightening path ...
... ONLY ... to a lesser magnitude than had been previously priced by the short-end of the U.S. fixed-income curve.
The revised GDP report released Friday provides a macro-microcosm, in that INVENTORY growth was a major positive, as was residential and non-residential investment ... while net exports were a major negative, and final demand consumption expenditures slowed across the board.
Bottom Line ... savings are NIL, income growth is NIL, fiscal stimulus is NIL, monetary growth is NIL ... and without Housing reflation ...
... forward prospects for a rampant, self-sustaining reflation ... are NIL.
The ONLY thing that is NOT ... nil ... is the level of consumer DEBT.
Perhaps the market is finally coming around to the macro -realities, as evidenced within the chart shown below plotting the 12-month forward Eurodollar Deposit spread, a proxy for 2005 Fed policy changes. As implied, the market went as far as to price-in 175 basis points of Fed rate hikes during 2005, when this spread reached its low earlier this year.
BUT ... following a mini-deluge of softer than expected eco-data-revelations, Hoofy has been spotted dancing in the interest rate pits ... leading the spread thru overhead resistance at 125 basis points, and confirming a trend reversal to the upside executed by the long-term MA.
Indeed, Hoofy may be doing the TWO-STEP ...
... dancing the bullish dance from the fixed-income pits ... right thru to the U.S. Dollar Index pit.
Observe the dual-dancing moving averages plotted in the overlay chart below. In FACT, the Depo spread and the USD have been TIGHTLY correlated, with hawkish monetary thoughts leading the USD lower ...
... and now ... vice-versa.
Hoofy in a tie-dye shirt ... who'd have ever thunk it ... as he dances more and more bearishly, in the foreign currency pits.
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