"Domestic inflation reflects domestic monetary policy." --Martin Feldstein
"Not so fast, my friend" --Lee Corso
I'll Gladly Pay You Next Tuesday...
So, a horse walks into a bar... no that's not it... maybe it was three guys and a chicken. Wait, wait, ahh, let's just tell it like it is. The Bank of Japan... wait for it... delayed it's own forecast -- yet again -- for reaching 2% consumer level inflation. The BOJ says that you can expect, or rather they expect to see, 2% inflation by March of 2020 (they really, really mean it this time), or roughly a year later than previously suggested.
Nobody really thought that the BOJ would stick to their projections anyway. This is the sixth time that this particular expectation has been pushed out since Haruhiko Kuroda became Governor in 2013. That's averaging a change roughly one and a half times a year. I have a better idea, Haruhiko. Just tell the folks of Japan that you are trying your best, but that you simply do not know. How refreshing would that be from a central banker?
By the way, as we have said in this column in previous days, the BOJ was acting a little more unpredictably than were other high-profile central banks around the world. The Bank of Japan decided this morning to keep the target for the Japanese 10-year paper at 0%, and it's short-term deposit rate at -0.1%, despite the bank having acknowledged at the last meeting that the economy was "expanding moderately." A dovish BOJ. Who would have thought it? At their last meeting, by the way, the BOJ had raised full-year guidance on GDP from 1.6% to 1.8%. The U.S. dollar suddenly finds a bid this morning, and that "badly in need of a revamp" U.S. dollar index creeps closer to 95. Next up, Super Mario.
For a Hamburger Today
Does the European Central Bank officially alter policy today? Not likely. What markets will do today is watch and listen. Listen to that craft-master of the spoken word, ECB President Mario Draghi. Draghi is a pro, and he will speak at 08:30 a.m. ET.
He will not get pinned down. He will leave enough room to leave you wondering about the future -- and his own ability to wiggle out of anything. He also will not back-track. Growth in the eurozone can be expected to hit 3% quarter-over-quarter on an annualized basis this year, perhaps even this quarter. Simply put, not only is Europe not a basket case, they are hotter than we are. (Uh... Sarge, we're not at all hot. Oh, yeah... uhm, sorry guys, I forgot. But they are.)
Listen, gang... the European Central Bank has had their foot on the gas for a while, still buying almost $70 billion worth of bonds a month, which has bloated their balance sheet to $4.9 trillion. That's larger than the Fed's balance sheet, for those scoring this game at home. The caveat is that European inflation, like U.S. inflation, like Japanese inflation, is not hitting target, because none of these guys understand the failure of the Phillips Curve in the modern environment. (It's really not that hard, guys... I mean adapt, already.)
Inflation expectations aside, Draghi realizes that accommodation can be taken too far, and he rattled world markets -- probably intentionally -- back on June 27 when he indicated that the central bank might start winding down it's quantitative easing program. Some folks are looking to the Kansas City Fed's Jackson Hole conference in late August as a possibility for Draghi to set up the ECB's September meeting for real action. Today, we just listen.
Yesterday, U.S. equity markets batted .1000. Eleven sectors went green on the day, even the recently beleaguered Financial sector. Health Care? Hot. Materials? Hot. Bond Proxies? Discretionary names? Tech? Hot, hot, hot. Hottest of all? Energy.
The weekly EIA data on U.S. inventories for WTI Crude contradicted the number released the night prior by the API. The Wednesday numbers showed sizable draws for both Crude, and Gasoline. Huzzah. On top of that, the EIA (Energy Information Administration) also reported that within the U.S., refinery inputs had decreased 125K barrels per day from just last week. Throw in a significantly weakened U.S. currency, and rock and roll... rally time.
The Energy Select Sector SPDR ETF ( XLE) screamed to a gain of nearly 1.5% on the day. Withing the sector, Murphy Oil ( MUR) , Transocean ( RIG) , Newfield Exploration ( NFX) , Helmerich & Payne ( HP) , Marathon Oil ( MRO) , Noble Energy ( NBL) , Apache ( APA) , and Chesapeake ( CHK) all scored daily increases in their stock prices of 4% or greater. Of those mentioned, APA and NBL are the most heavily weighted in that exchange traded fund. This is one arena that will be impacted today by post central bank policy meeting dollar valuations.