Weekly Assessments

Markets Little FOMC action to shift markets until very late in the week when Yellen was interviewed by Gregory Mankiw. She played along with the April FOMC Minutes despite negative data since then, thus she was slightly more hawkish than expected. Even though traders wanted to leave for a long weekend her comments pumped the two year yield up 4% to 0.91%. Impressive for a thin day’s trading. To be fair, the rally in yields did not a lot more than reverse the falls in mid-week that occurred due to the weaker than expected data and surveys. All measures of…...

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Markets Turns out that markets were wrong to discount the three Fed officials speaking hawkishly the week before last. Three more spoke hawkishly on Tuesday 17th raising rate hike expectations and strengthening the USD, including Dallas Fed’s Kaplan who had previously sounded rather dovish. And then on Wednesday 18th the FOMC Minutes provided concrete evidence that something had shifted followed up by the main mover and shaker of the moment William Dudley also talking up rate hikes this year. The Minutes and the speeches all indicated frustration with markets for not taking the FOMC seriously enough when they plan for…...

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Markets Near term rate expectations were unmoved over the week, with markets still only giving a 50/50 chance of one rate hike, and only that sneaked out again in December like last year – and after the US general election. There were many FOMC members peaking during the week but overall they tended to cancel each other out, although it was unfortunate that all three who spoke on Thursday, Rosengren (Boston), George (Kansas) and Mester (Cleveland) were hawkish. All warned, or moaned, that the market is wrong about its conservatism on rate hikes, almost as if they are offended to…...

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Markets An exciting week for the short end of the curve with the 12m benchmark Treasury yield dropping from 0.55% to 0.50% early on, before the poor April jobs numbers on Friday forced it below 0.50% intraday. Likely intervention from the Fed restored discipline and put it back to a 0.50% floor. The Fed would not want to see anyone doubting its power to keep interest rate expectations at 0.50% and above, in line with the target rate. We have seen similar action earlier in the year during market turbulence caused by poor economic news banging up against the Fed’s…...

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Markets US monetary policy is often the cause of major market movements but last week it was the turn of Japan to cause volatility. The failure of the Bank of Japan to change any element of their active policies was a surprise. There had been some considerable hype from many market commentators who seemed to suggest they “knew something” good was going to happen and confirmed by concurrent upward market moves. This positivity all reversed and more on the “no news” as the JPY rose strongly versus the USD and the stock market fell. The weakness of the USD against…...

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Markets Equities ended flat during the week in the US allowing rest of world equities to catch up, and consolidated later in the week thanks to a good performance from Draghi at the follow up press conference after the ECB Council meeting. The early week rally in US (subsequently reversed) and in non-US equities (especially) triggered a modest sell-off in bonds pushing yields across the curve back up to March highs, but still well below the levels see just before and after the December rate hike. With the exception of weekly jobs numbers, a lagging indicator, the bad economic data…...

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Markets – a good week despite the data Obviously bad data was offset by some significantly dovish chatter from members of the FOMC. Sadly, it is only tactically dovish within a “normalization”, aka tightening, bias. The CME FedWatch futures market moved during the week to only a 50/50 chance for one rate rise, and then only by December – just like in 2015. This market forecast is well off the consensus of the FOMC for two to three hikes this year. The 12 month benchmark bond yield ended the week at just 50bps. On Tuesday there was a significant rally…...

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Markets – equities begin to get it> Last week we suggested that US bonds were “getting it” and equities were too optimistic. Well, this week bond yields continued to fall and equities began to “get it” too. Nominal growth is poor and it’s not good news. The key data point of the week were the two surveys of the services sector for March. Both showed a weak rebound from a run of very weak readings. Even if slightly ahead of expectations they painted a very dull picture for 80% of the economy. “Slightly better news as neutral news”. Bond yields…...

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Markets – US equities versus bonds It’s been good for US equities as the S&P has further consolidated its post-March FOMC meeting bounce. Apparent monetary dovishness has boosted confidence. The US$ has also weakened back to the lower end of its recent trading range and equities in particular like that. The confidence in equities is something of a contrast with the bond markets. They don’t see the dovishness from the FOMC as that bullish. Tuesday saw a big hit to shorter term rate expectations due to weaker than expected PCE Price Inflation, especially the famous Core PCE PI. Plus we…...

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Markets – weak An Easter shortened week turned out quite dull. US equities drifted off the recent highs, as surveys of March activity came in weak and a bunch of less important, mostly non-voting, regional Fed governors complained about the dovish outcome of the March meeting. Tough. Goldman Sachs is still reeling from its wrong call about rates and has now doubled down, and started campaigning for higher rates. It seems silly but they are known to be influential with the Fed and so it is actually a tightening of monetary policy when Goldman’s come out all hawkish. US rates…...

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