From Marc to Market:
The US dollar has slipped lower against the major currencies and is mixed against the emerging market currencies. Still,
the consolidative tone seen since the start of the week has continued.
There seems to be a technical component here, but after a big push
higher, US rates have also eased.
News yesterday that nine of the 12 regional Federal Reserve banks called for a discount rate hike last month. The
regional Federal Reserve branches make an non-binding recommendation
to the Board of Governors. The Atlanta Fed became the news convert to
the cause. This is the highest number requesting that the discount
rate be lifted from 1.0% to 1.25% since last December. The Board
obviously did not acquiesce, however, it is indicative of the mood.
The three regional Fed branches that did go with the majority are interesting in their own right. NY,
which is understandable in our framework that sees Dudley as part of
the core Fed leadership that drives policy. Chicago is not much of a
surprise. Evans is among the leading doves. The Minneapolis Fed may be
the most surprising, but Kashkari has taken a dovish line.
Recall that the September dot plots showed three officials thinking that a rate hike this year would not be appropriate. At
the time, many, including ourselves, suspected Governors Brainard
and/or Tarullo were among those outliers. It appeared that Yellen had
to chose between dissents from the Governors if the Fed hiked or
dissents from regional Fed presidents if it stood pat. However, with
the discount rate minutes, there are other scenarios that ought to be
considered, and in any event, will likely prevent the odds of a December
hike unwind too far ahead of the jobs data early next month.
There have been two economic reports that investors are digesting now. First
came from China. The world's second largest economy expanded by 1.8%
in Q3 for a 6.7% year-over-year pace. It is spot on expectations and
is the third quarter at this reported pace. The GDP estimate sapped the
interest from the September industrial output (6.1% vs 6.3% in August)
and retail sales (10.7% vs 10.6% in August).
Perhaps the real takeaway from both the Chinese data and the fact
that the dollar is holding above what was previously believed to have
been the dollar's cap (~CNY6.7) is that there is not a takeaway. In
August 2015 and again at the start of this year, the global capital
markets appeared to be driven by events in China. This has ceased to be
the case. It is not the focus or linkages cannot be reestablished, but
rather it is to appreciate that events in Beijing are not among the key
drivers now....
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The dollar index
via FinViz:
