Did Janet Yellen really reverse so fast? Just two weeks after the Fed chair (and most other FOMC members) warned that ‘asset valuations are somewhat rich if you use some traditional metrics like price earnings ratios”, Yellen sent the Dow and MSCI World index back to all time highs, after what the market broadly interpreted as an unexpectedly dovish speech in which the one line that stood out was that ‘because the neutral rate is currently quite low by historical standards, the federal funds rate would not have to rise all that much further to get a neutral policy stance’ suggesting the Fed’s entire dot plot is an error and that the “terminal” Fed Funds rate will never make it to 3%, or even 2% for that matter.
Of course, algos and carbon-based traders were delighted by the phrasing and unleashed the latest buying spree, however did the market get ahead of itself? SocGen had a “pretty simple” explanation of what really happened yesterday, saying “don’t overcomplicate it…As long as US interest rates consolidate and fears about a move to well north of 2.5% remains in check, the positive tone in emerging markets that prevailed prior to mid-June should resume’. All I can add is that this as true of credit, equity and the broader FX market as it is of emerging markets.”
This post was published at Zero Hedge on Jul 13, 2017.
Follow on Twitter
Recent Comments