HUF: HUF Has Room to Run Despite Complicated Macro Picture

Fed Governor Miran (voter) on data challenges broadly, including how private sector data can offer good visibility on housing but could be misleading more broadly for inflation. 

• Moderator: This administration has expressed a lot of skepticism in the validity of government data, and I just wanted to know where you stand on that. Do you believe in the accuracy of the data that the US government is putting out right now?

• Miran: To be clear, I think that there's always the need for nuance and interpretation when it comes to economic data in general. I do think that the US government data have been and remain and will continue to remain the gold standard and the best in the world. In my mind, there has been some deterioration in quality in recent years, due in part to declining response rates. For instance, the current population survey or the establishment survey response rates have come down by, I think, about 30 to 35% over the last, you know, I think ten, fifteen years or so. This is something that I would hope, ultimately gets addressed and resolved and improved. But it's not up to the Federal Reserve to to do that.

   

• Q: Do you think it's important that the data be perceived as being politically independent?

• Miran: That the data are not manipulated for political purposes is what's important. I think that the government data are are the best quality we have, and they are the benchmark by which we we do and should continue to set policy. During this period of a government shutdown, you know, we are you know, we are deprived of most of the data that we would need to be to be making monetary policy effectively. Fortunately, we only have to make a policy decision every six weeks. And so I would remain optimistic that we will have the data by the time that we have to actually make our decision at the end of the month. In the meantime, there are some private sources of data. They're good to look at while you have nothing else. But I don't think that any of them are really sufficient replacements for the government data.

   

• Q: And what do you do in the event that the shutdown continues and you don't have access to the information you need?
• Miran:  Well, as I said before, my view is that monetary policy should be forward looking and should be forecast dependent. And so given the forecasts I have in mind, I would be looking for evidence that there was a reason why they might not come to pass. And so I'm always looking for what might falsify my view for the future. Like where would I be wrong? And as I said before, I think where would I be wrong is primarily, well, two things. One, if there's a lot more tariff inflation than I'm expecting, that's hard to do without the inflation data from the government. There are some private sources for prices, but I don't know that they're really reflective of of the consumption bundles that that people actually consume, that get reflected in government data. And the other thing is, of course, the housing market. And this is an area where there actually is a reasonable amount of non-government data that can that can help. And so to the extent that a lot of my optimism on inflation is driven by the shelter disinflation, I expect this is something that I can sort of look for in non-government data. And thus far, at any rate, I haven't seen anything that would make me think that my view has to be materially adjusted.

Through the London close JPY printing fresh pullback lows, helping trigger a new alltime high for EURJPY for a second session at 176.36.

• The JPY leg remains dominant for now, and Takaichi's ability to quell concern among junior coalition partners should prove key to any near-term JPY bounce and challenge to the JPY weakening bias.
• BoJ rate hike timing should also prove key here: the fading odds for an October hike have worked against JPY near-term, but more assertive messaging for a December hike may mean JPY weakness is limited here on out.
• We flagged earlier today the rising risk of a correction lower in JPY crosses, which now screen overbought in many crosses on the 14-day RSI for the first time since mid-September.

Interest in upside Euribor call condors has increased over the past few sessions. The continued pullback in front-end EUR rates vol has cheapened these structures, providing an attractive entry point for those looking to benefit from a rebound in outright vol on the back of dovish data developments. 

• Although ECB officials have stressed that policy is currently in a “good place”, the bank retains a highly data dependent stance. This isolates the end of the month as a key focus for markets. We’ve noted that the risk of another cut still comfortably outweighs the risk of a hike. Chief Economist Lane explicitly said as much yesterday, and the likes of Villeroy, Rehn and Simkus remain cognizant of downside inflation risks.
• October flash PMIs are due on October 24, before EZ Q3 flash GDP on October 30 and EZ October flash inflation on October 31. Note that the ECB’s October decision is also due on October 30. The signalling (if any) at this decision could be shaped by extremely fresh data developments. However, the base case is currently that the “good place” guidance remains unchanged.
• Today’s notable upside call condor flow has included:
  • ERU6 98.37/98.50/98.75/98.87 call condor, bought for 1 in 4k.
  • ERM6 98.37/98.50/98.75/98.87 call condor, bought for 1 in 5k (also bought in 14k yesterday).
  • ERM6 98.50/98.625/98.750/98.875 call condor, bought for 0.5 in 18k