peibolcomu
01-03-2023 19:41,
On Thursday saw the consequence of what occurs when inflationary and low-growth numbers are released. On inflationary side, we had greater import prices and about the low-growth side, we had retailers reporting lower sales and a widened trade equilibrium (that will be a drag on real GDP).
This really is a stagflationary situation-lower growth and higher inflation. It makes markets worried because it sets the Fed at a policy position.
As a result of this, we found a unwinding in carry trades as the GBP/JPY and EUR/JPY depreciated. As we have seen, carry trade unwinding also requires the dollar, because the price of GBP/JPY = GBP/USD x USD/JPY (This works exactly the exact same for EUR/JPY, NZD/JPY etc). So additionally, once the GBP/JPY carry trade unwinds, the dollar will fortify the GBP and weaken vs. the JPY.
With the retail sales number, traders look at what's called the ultracore number. The ultracore number strips gasoline from the equation out, leaving a image of true retail revenue. It is likely to observe the retail sales number up gasoline has gone up, but it is possible to observe the ultracore number down because 85 percent of retailers reported lower sales.
If it does turn out that the ultracore retail number prints low while core PPI prints large (a real possibility due to higher energy and industrial commodity prices filtering thru to the core number), we'll have exactly the exact same scenario as Thursday-stagflationary indiors. As we saw on Thursday, stagflationary indiors may result in risk aversion i.e. carry trade unwinding.
It really gets interseting when you do some arithmetic. If GBP/USD and USD/JPY lose a total of 60 pips between them-that's roughly 100 pips of depreciatoin in the GBP/JPY. 100 pips between them is 160 to get GBP/JPY.
This really is a stagflationary situation-lower growth and higher inflation. It makes markets worried because it sets the Fed at a policy position.
As a result of this, we found a unwinding in carry trades as the GBP/JPY and EUR/JPY depreciated. As we have seen, carry trade unwinding also requires the dollar, because the price of GBP/JPY = GBP/USD x USD/JPY (This works exactly the exact same for EUR/JPY, NZD/JPY etc). So additionally, once the GBP/JPY carry trade unwinds, the dollar will fortify the GBP and weaken vs. the JPY.
With the retail sales number, traders look at what's called the ultracore number. The ultracore number strips gasoline from the equation out, leaving a image of true retail revenue. It is likely to observe the retail sales number up gasoline has gone up, but it is possible to observe the ultracore number down because 85 percent of retailers reported lower sales.
If it does turn out that the ultracore retail number prints low while core PPI prints large (a real possibility due to higher energy and industrial commodity prices filtering thru to the core number), we'll have exactly the exact same scenario as Thursday-stagflationary indiors. As we saw on Thursday, stagflationary indiors may result in risk aversion i.e. carry trade unwinding.
It really gets interseting when you do some arithmetic. If GBP/USD and USD/JPY lose a total of 60 pips between them-that's roughly 100 pips of depreciatoin in the GBP/JPY. 100 pips between them is 160 to get GBP/JPY.