Hungary

Everywhere you look these days, central planning just can't stop reaping failure after failure. First it was Japan's Q3 GDP rising just 1.1%, well below the 1.9% in the previous quarter and the 1.6% expected, while the Japanese current account posted its first decline since of €128 billion (on expectations of a JPY149 billion increase) since January. What's worse, according to Asahi, Abe's approval rating tumbled to 46% in the current week, down from the low 60s as soon as early 2013, while a former BOJ member and current head of Japan rates and currency research, Tohru Sasaki, said that the high flying days of the USDJPY (and plunging of the JPY respectively) is over, and the USDJPY is likely to slide back to 100 because the BOJ would not be able to expand monetary easing by enough to repeat this year's "success." He definitely uses that last word rather loosely.

Previewing the rest of this week’s events, we have a bumper week of US data over the next five days, in part making up for two days of blackout last week for Thanksgiving. Aside from Friday’s nonfarm payroll report, the key releases to look for are manufacturing ISM and construction spending (today), unit motor vehicle sales (tomorrow), non-manufacturing ISM (Wednesday), preliminary Q3 real GDP and initial jobless claims (Thursday), as well as personal income/consumption and consumer sentiment (Friday). Wednesday’s ADP employment report will, as usual, provide a preamble for Friday’s payrolls.

While moderate recovery in growth and inflation is BofAML's rates team's base case, there are numerous risks to that forecast. The risk of tapering is already quite well known and they suspect it may not result in the significant market-moving event many expect when it actually happens; however, the following downside and upside risks threaten BofAML's central scenarios for 2014 as well.

An overview of recent developments, include the political developments in the US Senate, that may weigh on the dollar in the days ahead.  

The following Top Ten Market Themes, represent the broad list of macro themes from Goldman Sachs' economic outlook that they think will dominate markets in 2014.

1. Showtime for the US/DM Recovery
2. Forward guidance harder in an above-trend world
3. Earn the DM equity risk premium, hedge the risk
4. Good carry, bad carry
5. The race to the exit kicks off
6. Decision time for the ‘high-flyers’
7. Still not your older brother’s EM...
8. ...but EM differentiation to continue
9. Commodity downside risks grow
10. Stable China may be good enough

They summarize their positive growth expectations: if and when the period of stability will give way to bigger directional moves largely depends on how re-accelerating growth forces the hands of central banks to move ahead of everybody else. And, in practice, that boils down to the question of whether the Fed will be able to prevent the short end from selling off; i.e. it's all about the Fed.

A hot, phenomenally profitable export product with minuscule input costs and unlimited potential.

With better US labor market data, the key event in the upcoming week could well be the Yellen nomination hearing in the Senate Banking Committee. Yellen will likely deliver brief prepared remarks followed by questions from members of the committee. Yellen is expected to be relatively circumspect in discussing potential future Federal Reserve policy decisions in the hearings. Nonetheless, the testimony may help clarify her views on monetary policy and the current state of the economy. Yellen has not spoken publicly on either of these topics since the spring of this year. In addition to the nomination hearing, there will be a series of Fed speeches again, including one by Chairman Bernanke.

In the upcoming week, the key event is the US FOMC, though we and the consensus do not expect any key decisions to be taken. Though a strengthening of forward guidance is still possible, virtually nobody expects anything of import to be announced until the Dec meeting. In the upcoming week we also have five more central bank meetings in addition to the FOMC: Japan, New Zealand, India, Hungary and Israel. In Hungary we, in line with consensus, expect a 20bps cut to 3.40% in the policy rate. In India consensus expects a 25bps hike in the repo rate to 7.75%. On the data front, US IP, retail sales and pending home sales are worth a look, but the key release will be the ISM survey at the end of the week, together with manufacturing PMIs around the world. US consumer confidence is worth a look, given the potential impact from the recent fiscal tensions.

Once the economy's capital structure is distorted beyond a certain threshold, it won't matter anymore how much more monetary pumping the central bank engages in – instead of creating a temporary illusion of prosperity, the negative effects of the policy will begin to predominate almost immediately. Given that we have evidence that the distortion is already at quite a 'ripe' stage, it should be expected that the economy will perform far worse in the near to medium term than was hitherto widely believed. This also means that monetary pumping will likely continue at full blast, as central bankers continue to erroneously assume that the policy is 'helping' the economy to recover.

With an increasing focus in America on the ever growing entitlement society, we thought it might be useful to get some context of how the welfare states stack up across Europe. As Britain prepares to "test" immigrants in an effort to stymie "benefit tourists", The Telegraph's Ed Malnick, details what health care and child, unemployment and housing benefit a 30-year-old single EU migrant with a child but no job can access in each member state.

Greek government authorities are on alert after a union of Greek army reservists of Special Forces issued a statement urging the Greek administration to step down and make way for a national unity government. As Keep Talking Greece notes, the statement on the union' website included 15 demands - including the resignation of the Greek President - and urged people to gather at the infamous Syntagma Square on Saturday. The statement was interpreted by some as a call to a "coup d'etat" - denied by the union - but prompted Greece's Supreme Court to meet to discuss it.

Following the FOMC surprise, no less than twelve Fed speeches will provide some "clarifications" on where the Fed now stands. It is very likely that this subject will continue to dominate the discussions of market participants. At the same time, US data will get scrutinized after the recent weakening and to see how warranted the Fed's concerns were. Two US consumer sentiment surveys, durable goods orders, and the third reading of Q2 GDP are important. In addition, monthly consumption and income data for August provide more information on the third quarter and of course there will be interest in the latest weekly claims numbers after some distortions in recent readings.

In the US, retail sales on Friday will be the main data release. In addition, Congress will return from its 5-week recess on Monday and will likely keep their focus on Syria this week. Finally, San Francisco Fed President Williams (who does not vote on FOMC policy this year) will speak on Monday. Last week, Williams argued that the FOMC should maintain its focus on the unemployment rate, despite its limitations. After Friday's employment report saw the unemployment rate drop again due to falling participation, this issue is likely to resurface. The Fed's communication blackout period begins on Tuesday so Williams will be the last FOMC speaker before the September meeting ends on the 18th.

Just in case one's history textbook had a few extra pages ripped out, this may be a good time to recall just how far one's government is willing to go to start a war under false pretenses.

The Bank of England has missed its inflation target more than any other major European central banks in the past five years. As Bloomberg Brief notes, while BOE Governor Mark Carney linked monetary policy to unemployment last week, the BOE has failed to meet its CPI goal 90 percent of the time. Hungary is the second-worst performing, having missed its target 88 percent of the time. The best performers have been the Swiss and Norwegian central banks, which have a 5 percent and 20 percent miss rate, respectively. To rub further salt into the open wound of hope in the UK, it has also had the largest average deviation from its target inflation rate overall.