Lara Rhame
Lara Rhame
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In the near term, markets are getting very excited about the idea of the end of quantitative easing, and that's causing the yen to come under some upward pressure.
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Markets initially seem to be focusing more on the downward revision in growth than the upward revision to the deflator.
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The markets are trying to put this data in the context of how scared the Fed is by it. It's very difficult to see exactly what the Fed views as a continuation of last year's trend of broadly declining price pressure and what the Fed sees as a substantial decline.
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The Fed really comes in in situations where the capital markets stop functioning. This not that situation. They're functioning just fine -- they're just really negative.
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I would point to the core PCE deflator, which gave a modest upside surprise, ... This is the Fed's preferred measure of inflation ... and might have markets pricing in a more aggressive Fed.
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Market expectations have priced a rate cut in. When markets are pricing it in like that, the Fed can't afford to give a downside surprise in this environment.
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A turnaround in manufacturing has not been signaled anywhere else, so I guess I'm not as excited about this number as the markets seem to be. I would like to see this confirmed in another month of data.
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There's a growing effort within the Fed to look for other ways to add liquidity into markets and to sustain the interest-rate-led growth we've had. I think they are going to move to a bias to ease policy again, but I'd look for the ease somewhere else. It won't be a rate cut.
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Almost always the knee-jerk reaction in the markets to positive news on reforms is yen positive. People look at reform as being a positive thing for Japan, one day, hopefully.
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The weaker-than-expected housing number still leaves housing at a fairly high level of activity but will raise some eyebrows as markets worry about the (Federal Reserve) overshooting (with rate hikes).
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This is the Fed's preferred measure of inflation...and might have markets pricing in a more aggressive Fed.
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If we get a downside surprise in retail sales, everybody will shrug it off. We all know that April was a bad month for the economy; the markets are really geared toward May.
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On balance, it is a modestly dollar negative set of data. Retail sales growth was a little weaker than markets had expected, with a downward revision to the ex-auto sector.
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The markets have probably been too quick to connect the dots from the current slew of good data straight to a Fed rate hike,