• Tag Archives FOMC
  • Trader: “We Need Another 20 Basis Points For The Entire Narrative To Change”

    As noted yesterday, Bloomberg trading commentator Richard Breslow refuses to jump on the bandwagon that the Fed is hiking right into the next policy mistake. In fact, he is pretty much convinced that Yellen did the right thing… she just needs some help from future inflationary print (which will be difficult, more on that shortly), from the dollar (which needs to rise), and from the yield curve. Discussing the rapidly flattening yield curve, Breslow writes that “the 2s10s spread can bear-flatten through last year’s low to accomplish the break, but I don’t think you get the dollar motoring unless the yield curve holds these levels and bear- steepens. Traders will set the bar kind of low and start getting excited if 10-year yields can breach 2.23%. But at the end of the day we need another 20 basis points for the entire narrative to change.”
    To be sure, hawkish commentary from FOMC members on Monday (with the semi-exception of Charles Evans) and earlier this morning from Rosengren, is doing everything whatever it can to achieve this. Here are the highlights from the Boston Fed president.
    ROSENGREN SAYS LOW INTEREST RATES DO POSE FINANCIAL STABILITY ISSUES ROSENGREN: LOW RATES MAKE FIGHTING FUTURE RECESSIONS TOUGHER ROSENGREN SAYS REACH-FOR-YIELD BEHAVIOR IN LOW INTEREST RATE ENVIRONMENT CAN MAKE FINANCIAL INTERMEDIARIES, ECONOMY MORE RISKY

    This post was published at Zero Hedge on Jun 20, 2017.


  • The Fed’s Policy and Its Balance Sheet

    At its June meeting, the FOMC again raised the target range for the federal funds rate by 25 basis points, to 1 – 1 percent. They did so despite evidence that inflation had moderated and that the second estimate of first quarter GDP growth was clearly subpar at 1.2%. Furthermore, despite the fact that 7 of the 12 Federal Reserve district banks had characterized growth in the 2nd quarter as ‘modest,’ as compared with only 4 banks that described it at ‘moderate’ (the NY bank simply said that growth had flattened), the FOMC in its statement described growth as ‘moderate’ (here one needs to know that in Fed-speak ‘modest’ is less than ‘moderate’). The overall discussion evidenced in the statement and subsequent explanations by Chair Yellen in her post-meeting press conference, together with the fact that the only significant change in June’s Summary of Economic Projections was a slight downward revision in the unemployment rate for 2017, failed to make a convincing argument to this writer that there was a compelling case for a rate move at this time. The principal conclusion we can draw is that the FOMC had already conditioned markets to expect an increase in June and that the FOMC’s main rationale was its desire to create more room for policy stimulus should the economy take a sudden turn to the downside.
    More significant than the rate move, however, was the detail the FOMC provided on its plan to normalize its balance sheet, which elaborated on the preliminary plan it put forward in March. Once the Committee decides to begin that process, it will employ a set of sequentially declining caps, or upper limits, on the amount of maturing assets that will be permitted to run off each month. The cap for Treasury securities will initially be $6 billion per month, and it would be raised in increments of $6 billion every three months until $30 billion is reached. Similarly, the cap for MBS will be $4 billion per month, which would also be raised by that amount every three months until $20 billion is reached. These terminal values would be maintained until the balance sheet size is normalized. Left unsaid was what the size of the normalized balance sheet would be.

    This post was published at FinancialSense on 06/19/2017.


  • Key Events In The Coming Quiet Week: Brexit, Housing And Lots Of Fed Speakers

    In an otherwise relatively quiet week in which the only upcoming US data is housing, current account and jobless claims, UK politics will again draw attention, one year (on Friday) after the Brexit referendum and as noted earlier, Brexit negotiations begin on Monday, despite lingering political uncertainty in the UK. Also no less than 9 FOMC members are scheduled to speak this week.
    On Wednesday the Queen’s Speech will mark the opening of parliament and outline the government’s legislative program, despite no formal agreement between the Conservative Party and the DUP (at time of writing). Bank of England speakers will also get attention after last week’s surprisingly hawkish BOE, particularly Governor Carney’s re-scheduled Mansion House speech. Overall we could see a headline-heavy week, making for a volatile period ahead for GBP.
    A quick snapshot of what to expect:
    A very light calendar in the US, with only housing data, current account
    balance and the usual weekly jobless claims. We do hear from various
    Fed speakers, including New York Fed President Dudley on Monday and Vice
    Chair Fischer on Tuesday.

    This post was published at Zero Hedge on Jun 19, 2017.


  • Hedge Funds Have Never Been This Bullish About Small-Cap Stocks

    The last two weeks have seen the biggest increase in hedge fund bullish Russell 2000 positions since July 2008 pushing the net speculative long position for leveraged funds to a record high.
    The reflexive combination of hedge fund shorts being squeezed and FOMC Drift pushed Small Caps higher early in the week, but notably since the cut-off data for CFTC reporting, Small Caps have dropped…

    This post was published at Zero Hedge on Jun 18, 2017.


  • Market Report: Rate rise, stronger dollar, weak gold

    This week, the Fed’s FOMC increased the Fed funds rate by 0.25%, to a target of 1% to 1.25%. This was so certain to happen it was fully discounted in the markets. The FOMC also gave some details about its aspirational plans to reduce its balance sheet over time. Nonetheless, the dollar rallied, helping to push gold and silver lower.
    ***
    Having backed off from last week’s challenge of the $1300 level, gold fell a further $13 this week to $1254 in early morning trade in Europe this morning. Silver fell a further 44 cents over the same time scale.

    This post was published at GoldMoney on JUNE 16, 2017.


  • Haunting Yellen

    I wouldn’t put it in the category of LBJ ‘losing Cronkite’, but it is at least a measure of amplified pressure (or just any pressure). This week has been utterly embarrassing for the Federal Reserve, a central bank that refuses to define clearly what it is attempting to do. It leaves questions even for who used to be highly sympathetic.
    Their aim is simple enough as a matter of pure economics. The economy didn’t recover and is never going to (so long as monetary matters remain truly unexamined). Having resisted this possibility for nearly a decade, officials who have now come around wish to avoid having to admit it. So they let the media define the economy by the unemployment rate which projects an image of conditions that simply don’t exist.
    The New York Times has typically been friendlier to the official stance on these matters. Credentials go a long way there, and who has better pedigree than Federal Reserve policymakers? But even they may have to call foul because it’s not like the unemployment rate just yesterday dropped so low. It’s been flirting with official levels of ‘full employment’ for three years, forcing the FOMC’s suspect models to redefine down their calculated central tendency (the theorized range where low unemployment is believed to spark serious wage acceleration and then consumer price inflation) time and again.
    At 4.3%, the unemployment rate doesn’t any longer leave much room for interpretation. It’s go time, now or never.

    This post was published at Wall Street Examiner on June 16, 2017.


  • One Fed President Says The Rate Hike Decision Was A Choice “Between Faith And Data”

    Over the years many have accused central banking of being the world’s latest (and most profitable) religion, with central bankers the only modern day priests left that still matter (to the tune of $75 trillion, the market cap of all stocks in the world).
    Today, in a blog post from Minneapolis Fed president Neel Kashkari explaining why he dissented from the latest Fed rate hike decision, he admits as much when he says “for me, deciding whether to raise rates or hold steady came down to a tension between faith and data. On one hand, intuitively, I am inclined to believe in the logic of the Phillips curve: A tight labor market should lead to competition for workers, which should lead to higher wages. Eventually, firms will have to pass some of those costs on to their customers, which should lead to higher inflation. That makes intuitive sense. That’s the faith part.”
    In a surprisingly honest assessment, he then says that “unfortunately, the data aren’t supporting this story, with the FOMC coming up short on its inflation target for many years in a row, and now with core inflation actually falling even as the labor market is tightening. If we base our outlook for inflation on these actual data, we shouldn’t have raised rates this week. Instead, we should have waited to see if the recent drop in inflation is transitory to ensure that we are fulfilling our inflation mandate.”
    Which inductively suggests that the rest of the FOMC is still driven by, well, faith alone. Unfortunately, this time the faith has consequences, and as Citi’s Matt King explained earlier, the Fed’s decision to not only hike rates but also to begin a $450 billion annual reduction in its balance sheet, will have “significant adjustment in valuations.”

    This post was published at Zero Hedge on Jun 16, 2017.


  • Chinese Basis For Anti-Reflation?

    This is a syndicated repost courtesy of Alhambra Investments. To view original, click here. Reposted with permission.
    Yesterday was something of a data deluge. In the US, we had the predictable CPI dropping again, lackluster US Retail Sales, and then the FOMC’s embarrassing performance. Across the Pacific, the Chinese also reported Retail Sales as well as Industrial Production and growth of investments in Fixed Assets (FAI). When deciding which topics to cover yesterday, it was easy to leave off the Chinese portion simply because much of it didn’t change.
    In the case of IP and Retail Sales, that was literally the case. Growth rates for both were identical in May to what was presented for April. For the former, IP remains stuck at 6.5% after just one month (7.6% March) that suggested acceleration. Chinese retail sales were again 10.7%, which again almost perfectly matches the average for the last now 34 months.

    This post was published at Wall Street Examiner by Jeffrey P. Snider ‘ June 15, 2017.


  • Why ‘Suddenly Hawkish’ Yellen Brushed off the Dip in Inflation

    She did her homework. And consumers got a temporary gift. A ‘suddenly hawkish’ Yellen, as she is now being prefaced by some voices, brushed off the dip in inflation when she spoke after the FOMC meeting yesterday.
    Inflation backtracked a tiny bit. The Consumer Price Index rose ‘only’ 1.9% year-over-year in May, and the core CPI without food and energy rose ‘only’ 1.7%. ‘Only’ in quotes because there is still enough inflation to whittle away at the purchasing power of wage earners who have to make do with stagnant wages and retirees who have to live off their near-zero-yield savings.
    But Yellen looked at the details of the inflation reports and discovered that there were some one-time or short-term factors that brought inflation down a bit – and none of them are going to last.

    This post was published at Wolf Street on Jun 15, 2017.


  • Has The Fed Actually Raised Rates This Year

    The answer is debatable but it depends, exactly, to which rates you are referring. The Fed has ‘raised,’ more like ‘nudged,’ the Fed Funds target rate about 50 basis points (one-half of one percent) this year. That is, the Fed’s ‘target rate’ for the Fed Funds rate was raised slightly at the end of two of the four FOMC meetings this year from 50 to 75 basis points up to 1 – 1.25%. Wow.
    But this is just one out of many interest rate benchmarks in the financial system. The 10-yr Treasury yield – which is a key funding benchmark for a wide range of credit instruments including mortgages, municipal and corporate bonds, has declined 30 basis points this year. Thus, for certain borrowers, the Fed has effectively lowered the cost of borrowing (I’m ignoring the ‘credit spread’ effect, which is issuer-specific).

    This post was published at Investment Research Dynamics on June 15, 2017.


  • Cudmore: Yellen Just Made A Big Mistake

    One of the lingering questions to emerge from yesterday’s FOMC meeting, after Yellen’s “first dovish, then hawkish” statement rocked the dollar and markets, is whether the Fed chair has some more accurate way of forecasting inflation than the rest of market to justify her optimistic outlook, and to explain why the divergence between the Fed’s dot plot and the market’s own FF forecasts is nearly 100%. And, if not, is the Fed about to make another major policy mistake by forecasting a far stronger economy than is possible, culminating with a recession.
    According to Bloomberg’s Mark Cudmore, the answer is that while Yellen is desperate to infuse confidence in the market, the Fed, which “hasn’t been correct for seven years”, remains as clueless as ever, which is why the Fed’s hawkishness is actually a signal to buy long-end bonds, which will add to further curve tightening and ultimately precipitate the next recession.
    Put otherwise, “if Yellen had acknowledged that the policy frameworks she and her colleagues have been using since the crisis have all been incorrect, then we might believe she has a chance of now applying a more appropriate framework and has a credible plan to sustainably hit the inflation target. Instead, traders can’t help but feel that no lessons are being learned and will have to raise the probability of a major policy mistake in market pricing. This means that the yield curve will need to flatten further through long-end yields dropping.”
    In simple words: the Fed has just brought the next recession that much closer, which shouldn’t come as a surprise. As we showed before, every Fed tightening akways ends with a recession. The only question is when.

    This post was published at Zero Hedge on Jun 15, 2017.


  • Markets Blow off the Fed until Next ‘Financial Event’

    Fed lays out plan to unwind QE by $600 billion a year. Markets shrug. But ‘Painful sell-offs eventually materialize…’ Yellen sounded ‘surprisingly hawkish,’ the experts said after the news conference today. She saw a strong labor market and downplayed slightly softer inflation as temporary. The Fed forecast economic growth at the same miserably slow rate we’ve seen for years, with the median projections of 2.2% growth in 2017, 2.1% in 2018, 1.9% in 2019, and 1.8% in the ‘longer run.’
    So the FOMC voted eight-to-one to hike by a quarter point the target for the federal funds rate to a range between 1.0% and 1.25%. It maintained its forecast of one more hike this year. And it laid out its plan on how to unwind QE.
    The Fed is no longer speculating whether or not to start unloading its $4.5-trillion balance sheet. It has a specific plan. The nuts and bolts are in place. It was agreed to by ‘all participants,’ it said in the Addendum. And it’s going to start ‘this year.’

    This post was published at Wolf Street on Jun 14, 2017.


  • Global Markets Down On More Hawkish Fed, Trump Obstruction Investigation

    This is a syndicated repost courtesy of Money Morning. To view original, click here. Reposted with permission.
    (Kitco News) – World stock markets were mostly weaker overnight. U. S. stock indexes are pointed toward lower openings when the New York day session begins.
    The news reports late Wednesday that special prosecutor Robert Mueller will investigate U. S. President Donald Trump for obstruction of justice has thrown more uncertainty into the world marketplace.
    Gold prices are solidly lower in pre-U. S.-session trading Thursday. The yellow metal is pressured by the hawkish reading the marketplace gave this week’s FOMC meeting.
    The Federal Reserve on Wednesday afternoon raised U. S. interest rates by 0.25%, as expected by most. The Fed said it will also fairly aggressively reduce its big balance sheet of government securities in the coming months. The FOMC statement also said U. S. inflationary pressures have eased a bit recently. However, Fed Chair Janet Yellen at her press conference sounded a more hawkish tone on inflation. After digesting the FOMC statement and Yellen’s remarks, the marketplace deemed this latest Fed meeting as more hawkish on U. S. monetary policy.

    This post was published at Wall Street Examiner by Jim Wyckoff ‘ June 15, 2017.


  • How to Discover Unknown Market Anomalies

    Seasonax Event Studies As our readers are aware by now, investment and trading decisions can be optimized with the help of statistics. After all, market anomalies that have occurred regularly in the past often tend to occur in the future as well. One of the most interesting and effective opportunities to increase profits while minimizing risks at the same time is offered by the event studies section of the Seasonax app.
    ***
    As a pertinent example for this, the Federal Reserve Bank of New York published a study in 2011 which examined the effect of FOMC meetings on stock prices. The study concluded that these meetings have a substantial impact on stock prices – and contrary to what most investors would tend to expect, mainly before rather than after the announcement of the committee’s monetary policy decision.

    This post was published at Acting-Man on June 15, 2017.


  • June FOMC Announcement: Rate Hike and Balance Sheet Plans

    June’s FOMC meeting concluded today and the meeting announcement revealed an interest rate hike of .25% to bring the Federal Funds target to between 1 and 1.25%. Additionally, we also learned that the FOMC anticipates one more rate in 2017, 3 more in 2018, and the beginning of a balance sheet reduction effort starting this year. Of course, the balance sheet reduction is actually just a taper in the amount of reinvestment. Since they are simply slowing down how much in assets they are buying every month, the balance sheet will still be increasing.
    There are still concerns at the FOMC (and in monetary officialdom in general) that the devaluation of our purchasing power (colloquially known as “inflation”) is not occurring rapidly enough. From their own statistics, which exclude things most important to consumers such as food and energy, price inflation dipped a bit to 1.7%. This, of course, is an utter outrage to the experts.
    We also got more specific detail about the balance sheet plan, which as we have said all year is going to be the primary narrative of the second half of 2017 in place of interest rate hike talks. Bloomberg reports:
    In a separate statement on Wednesday, the Fed spelled out the details of its plan to allow the balance sheet to shrink by gradually rolling off a fixed amount of assets on a monthly basis. The initial cap will be set at $10 billion a month: $6 billion from Treasuries and $4 billion from mortgage-backed securities.

    This post was published at Ludwig von Mises Institute on June 15, 2017.


  • 14/6/17: The Fed: Bravely Going Somewhere Amidst Rising Uncertainty

    Predictably (in line with the median investors’ outlook) the Fed raised its base rate and provided more guidance on their plans to deleverage the Fed’s balance sheet (more on the latter in a subsequent post). The moves came against a revision of short term forecast for inflation (inflationary expectations moved down) and medium turn sustainable (or neutral) rate of unemployment (unemployment target moved down); both targets suggesting the Fed could have paused rate increase.
    Rate hike was modest: the Federal Open Market Committee (FOMC) increased its benchmark target by a quarter point, so the new rate range will be 1 percent to 1.25 percent, against the previous 0.91 percent. This marks the third rate hike in 6 months and the Fed signalled that it is on track to hike rates again before the end of the year (with likely date for the next hike in September). The forecast for 2018 is for another 75 basis points rise in rates, unchanged on March forecast.

    This post was published at True Economics on June 14, 2017.


  • Goldman Revises FOMC Forecast After Third Consecutive CPI Miss

    First RBC, now Goldman.
    After core CPI inflation was lower than expected for the third consecutive month, and the year-over-year rate fell two tenths to +1.7%, Goldman has made some changes to what it believes the Fed will report at 2pm today. It now expects the FOMC statement to include a stronger acknowledgement of the recent soft inflation data, and its expectations for the Summary of Economic Projections “have become incrementally more dovish.”
    The details:

    This post was published at Zero Hedge on Jun 14, 2017.


  • FOMC Meeting Likely to Conclude with an Interest Rate Hike

    The Dow Jones news today will focus on the conclusion of the June FOMC meeting as the Fed is expected to announce an interest rate hike. Today’s rate hike would be the third in seven months, and Dow Jones futures are up 33 points ahead of the bell.
    Here are the numbers from Tuesday for the Dow, S&P 500, and Nasdaq:

    This post was published at Wall Street Examiner on June 14, 2017.


  • “FOMC Drift” In Full Effect As Global Stocks Rise; S&P Futures Hit New Record; Oil Slides

    With last Friday’s “tech wreck” now a distant memory, this morning the “FOMC Drift” described yesterday, which “guarantees” higher stock prices and a lower dollar heading into the Fed announcement is in full effect, with European and Asian stocks rising for a second day, led by rebounding tech shares, while S&P futures are modestly in the green and stocks on Wall Streets hit a record high overnight. And as the “FOMC Drift” also expected, the dollar has weakened for a third day with Treasuries rising, while oil fell after the latest IEA world forecast cut its global demand forecast while boosting output expectations.

    The MSCI All-Country World index was up 0.1% and has remained stuck in a tight range this month. European shares headed for the highest in more than a week as companies including ASML and Hexagon (on M&A speculation) led the tech share revival in the region. The Stoxx Europe 600 Index gained 0.6%, building on a 0.6% increase the day before. Apart from technology sector, European equity markets supported by continued pick-up in industrial production which helps construction stocks.

    This post was published at Zero Hedge on Jun 14, 2017.


  • “The Day Of The Dovish Hike?”

    The paradox continues: on one hand stocks continue to anticipate a reflating economy, with S&P futures hitting a new all time high overnight; on the other hand, the weaker dollar and especially Treasury yields are increasingly worried that today’s rate hike, the 4th in the past decade, will be another policy error, leading to more curve flattening and eventually a deflationary outcome.

    And while there is little doubt Yellen will hike today as Goldman, and consensus, expect, the question is what the future pace of rate hikes will look like and whether the recent disappointing CPI prints will mean and “one and done” for the rest of the year from the Fed. While there is some possibility of an unexpectedly hawkish statement from the FOMC, especially if the Fed is worried about an asset price bubble, it is far more likely that today’s announcement will be yet another “dovish hike”, which is what SocGen’s Kit Juckes previews in his latest overnight note.

    This post was published at Zero Hedge on Jun 14, 2017.