The US-centric and USD-centric nature of Asia was well highlighted during our morning sell / trade conference today. After my usual opening salute covering everything and everything I thought was relevant for the day ahead, including all the ECB news, it was interesting to note that most of the following speakers still did not refer to the movements of Bund yield overnight, but to those of US Treasuries. This is a classic case of the tail wagging the dog. And this latest market move really has its roots in Klaas Knot and Robert Holzmann’s comments in Europe, with a bit of added spice from a potential future German finance minister (pending election results of course).
Their comments, prompted by the rise in European inflation (for example, the German HICP for August is now 3.4% yoy, the highest since July 2008), focused on reducing purchases of ECB emergency assets (PEPP) which they believe could start imminently, and this also gave the euro a boost against the USD, pushing it back above the 1 level , 18 at the moment.
There is an ECB meeting on September 9, and ECB President Christine Lagarde could try to throw cold water on such ideas. So the current market change might not last. But it’s worth keeping in mind, and I would like to insist that a little more attention be paid to Europe in the coming weeks from this part of the world than is usually the case. .
The same arguments in favor of reducing asset purchases in Europe are of course made in the United States. The constant deposits of $ 1 billion and more in cash with the Fed’s overnight repo facility is one symptom of an emergency policy that is well past its lifespan. Ask James Bullard or Raphael Bostic. Other symptoms can include an acceleration in house prices. We’re used to this as an excuse for removing emergency policy parameters here in Asia. The recent Bank of Korea rate hike is a good example, with household debt being an additional excuse. S&P Case Shiller’s US home price growth for June (quite lagged and real-time measurement may well be higher) is now 19.08%. It’s not something Jerome Powell should ignore.