Data dependent, but are the data dodgy?

Central bankers have a conundrum. European Central Bank President Mario Draghi, Fed Chair Jerome Powell and Bank of Canada Governor Stephen Powell have taken turns stressing that monetary policy decisions are “data dependent.” But what happens if the data the data they are depending upon are dodgy?

Reuters claims that ECB “sources” say a “significant minority of policymakers do not believe in a second-half recovery because of questionable accuracy within the bank’s models, as evidenced by its long history of downward revisions. EURUSD wobbled on the news but quickly recovered from its small losses.

A common theme running through the policy statements from many major G10 central banks is “downside risks to their outlook,” and if the data inputs are questionable, those downside risk will persist.

Nevertheless, data and surveys are what make the FX markets go around as evidenced by yesterday’s Bank of Canada quarterly Business Outlook Survey. (BOS) The BOS was a tad weaker than expected with a notable drop in capacity pressures which is expected to keep the Bank of Canada on hold for the rest of the year. USDCAD soared on the news and is consolidating those gains in a 1.3350-1.3400 range in New York trading. Today’s Manufacturing Shipments data for February (Actual -0.2% vs January 0.8%) was ignored.

It is a slow news and data day with FX action confined to narrow bands. GBPUSD dropped from 1.3090 to 1.3050 on headlines suggesting that Tory and Labour Brexit talks are not going well is a knee-jerk reaction in a “no-news, no-data” environment.

Wall Street markets are perky. A handful of better-than-expected earnings reports combined with equity market gains in Asia and Europe led to small gains in the three major indices in early trading. Yesterday’s dovish comments from Chicago Fed President Charles Evan’s that rates will remain unchanged into 2020 have helped put the S&P 500 within spitting distance of an all-time peak.