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Fundamental outlook for the coming week: Presentation from our weekly webinar

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Japan: the outlier

  • Manufacturing barely recovered, is turning down
  • Service sector hasn’t recovered yet

  • Tokyo CPI = 0% yoy
  • Japan will be the last country to raise rates

  • Japanese investors can buy other countries’ bonds & hedge the currency at a pickup to JGBs
  • Japanese outflows + use of JPY as a funding currency = weaker JPY

  • Tankan (Thu) to show improving sentiment
  • But service sector is still far below pre-pandemic levels

    • NFP: “progress” but not “substantial”

  • Decent rise expected, but not +1mn
  • Unemployment still high, participation rate low

  • Fed wants to see “broad” and “inclusive” recovery in employment

  • Employment is the deciding factor as inflation is already well over their target

    • EU: Inflation expected to slow

  • May keep ECB policy loose = EUR-
  • Last undistorted inflation data for some time

    • Jobless claims: watch continuing

  • 26 states (over half) will stop $300/week federal unemployment benefits early to force people to take jobs
  • So far no impact
  • Job site Indeed found that in states that have abandoned the federal benefits, clicks on job postings were below the national average.

    • Positioning: reducing USD shorts

    • Specs cut long currency positions after FOMC
    • Mostly EUR but also GBP, increased short JPY
    • Increased long CHF, cut short AUD

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