Weekly Assessments

Week ending Friday 16th September 2016 The week started with the markets pondering the state of mind of the FOMC via the very important speech of Fed BoG member Lael Brainard. The week ended with the market trying to ponder the mind of the Fed after a large batch of date releases: which ones will they look at, not look at, and how will they  interpret the numbers. Trump = Brexit, maybe Muddying the whole picture is the Presidential election. Clinton would most likely be a big yawn for policy while Trump would be exciting, scary even. A bit like… Read More

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Week ending Friday 9th September 2016 What is it about Fridays? The main market action always seems to be at the end of the week. Equities had a very bad day with the S&P falling 2.5% and bond yields continuing to rally hard. The USD roller-coasted as markets assumed monetary policy would be loosened after the bad PMIs. But that was before the idea was cruelly disabused by the FOMC hawks. The yield curve bizarrely steepened as the short end rose on higher near term rate rise expectations and the long end yields rose further due to oil-induced inflation fears… Read More

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Week ending Friday 2nd September 2016 Industry side surveys for August were poor, especially manufacturing. Services are harder to read, which is a problem given they are well over 80% of output! Consumer confidence stayed robust which fits with the employment numbers but not with the earnings trends. The Fed will probably not raise rates in the face of this mostly poor news and so markets remained quiet – not quite understanding, as ever, that the poor news is a consequence of the Fed tightening bias. What does the FOMC think? All different stuff There was very little central banker… Read More

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 Week ending Friday 26th August 2016 Markets had a largely directionless week until Friday and the big Jackson Hole symposium. New home sales had excited the market on Monday but by Wednesday pending home sales had heavily disappointed as had the many current month surveys. Triumph of hope over experience Hopes had been raised the week before by John Williams’ Economic Letter proposing some new thinking but then quickly dashed by William Dudley in an interview and by John Williams himself in a speech. Markets seemed to have picked up the vibe that nothing big would come from Jackson Hole… Read More

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Week ending Friday 19th August 2016 Data took a back seat to FOMC members and group statements. They appeared to be in conflict not only with each other, as in the FOMC Minutes released mid-week, but even with themselves. The USD has remained weak while bonds have been merely volatile, apart from the short end. Equities have remained near the highs, bolstered by a good recovery in oil prices. The most significant dichotomy has been the USD weakness versus higher 12m interest rate expectations – a superficially puzzling phenomenon but maybe explained by the current and upcoming debates within the… Read More

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 Week ending Friday 12th August 2016 Another week another cut in rates. The turn of New Zealand (and Uganda). Sadly, central banks are still highly unimaginative when it comes to monetary policy. They are stuck in the interest rates first and foremost track, followed by QE. Something simple and effective like changing the target seems beyond them – does it? There was little noise from current US central bankers, mixed messages from surveys and data. Once again the biggest data was from the end of the week with the first spending data for July being released in the retail sales… Read More

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 Week ending Friday 5th August 2016 The UK cut this week, Australia last week. The ECB and Japan are in negative rates. Yet bond markets are saying there is little or no inflation or nominal growth on the horizon. In fact, the opposite, hence the cutting of rates to stimulate some growth – even if it often appears futile. The big daddy of monetary regimes, the US, is still set on a tightening course, can it hold out? Probably, not. But there are obstacles. The US economic growth is weakening but not disastrously so One obstacle to US rate cuts… Read More

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There was quite a lot of monetary news during the week that shifted currencies and bond markets around. The FOMC kept rates unchanged as expected but attempted to warn about the risks of higher rates later this year by claiming that the economy looked much stronger than markets think is the case. Although markets immediately reacted by reflected a tightening of monetary policy the disagreement with the FOMC on its economic assessment and the impact of a tightening led to currency weakness and bond yields falling. On the day of the FOMC announcement three random, unconnected, pieces of economic data… Read More

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A very quiet week in the markets partly the start of the major vacation season, partly due to waiting to see how the real economy reacts to Brexit in the UK and Euro Area, but probably mostly due to the fact that FOMC members were in purdah ahead of their meeting next week. Silence is sometimes golden. Bonds were very quiet indeed, barely moving anywhere along the curve. The 10-2 spread has “risen” back to around 85bps – still well down on historical levels and should be a massive red flag for the FOMC. The USD did drift up slightly… Read More

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