Friday, November 6, 2015

US NFP: Central banks must be vision-oriented – Deutsche Bank

FXStreet (Delhi) – Alan Ruskin, Macro strategist at Deutsche Bank, suggests that now that the Fed has successfully walked market expectations up above 50% for a December rate hike, the Fed is not going to want to walk expectations down again, after the payrolls data.

Key Quotes

“Not least it would smack of a Central Bank that is caught in the weeds and wiggles of short-term data. Central Banks must look like they are medium-term oriented.”

“The Fed could not have wished for a better equity and global risk response to their ‘hawkish’ October FOMC statement. The markets have implicitly given their blessing to a rate hike.”

“The bar’ to a rate hike is relatively low. Interestingly, the Bloomberg survey has only two forecasts out of 92 estimates below 145K. 97% of market payroll forecasts are in a zone consistent with a Dec tightening.”

“Can the Fed enact a ‘dovish hike’ in December? The Fed hiking with payrolls averaging less than 150K would in current circumstances be regarded as a dovish hike, since it fits with the Fed being ahead of the curve and going slow. There is no such thing as a dovish hike if the data is strong.”

“Strong data will prove at least a small negative for US equities, and, a more significant negative for Global Risk Appetite.”

“In the FX market, on strong data short the MXN and ZAR in EM; and in G10 the CAD. A 200K type payroll number may be needed to give EUR/USD a kick through the major 1.0810 support level. A close below this level sets up an early run at the year’s EUR/USD low.”

“The pain trade is a weak number that undermines prospects of a Fed rate hike, and squeezes freshly minted USD longs, including USD/JPY. Since weak data will at the margin raise the probability of future ECB depo cuts, this should constrain any EUR/USD uptick to near 1.10.”
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