Market Watch

Our MAST Index has continued to fall down to below 55 from the mid-May peak of nearly 65. The dissipation of the April optimism after modest recoveries in surveys and data has not been sustained. We had already seen a run of poor May surveys that turned concrete with the poor May payrolls data, followed up by poor Industrial Production figures for May last week. FOMC reacts quicker to strong data than weak data – tightening bias still intact Back in early May we had feared that the Fed would see the modest April pick up as a reason to… Read More

Share

Equities always seem to get it last Equities had to wait until the end of the week before they started to properly react to the facts of the US economic slowdown. There was no specific trigger for them to fall but bond yields had been giving a clear steer since the week before. Technicals can often drive markets, things like “crowded shorts”. This is where too many people are betting on a bad outcome that doesn’t occur, leading to short covering, that actually drives markets in the opposite direction to the democratic consensus of market participants. The problem is that… Read More

Share

“Oh, the grand old chair of the Fed, she had 10,000 men, she marched them up to the top of the hill and she marched them down again” Late Friday May 26th Yellen reaffirmed the strong bias of the Fed to raising rates sooner rather than later. A string of speeches from both regional Fed Governors, the Minutes of the April FOMC meeting and a speech by FOMC Vice-Chair Dudley seemed like a concerted efffort to scare the markets, topped off by Yellen herself.. This wave of Fed tightening warnings came despite a run of poor data that had convinced… Read More

Share

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… Read More

Share

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… Read More

Share

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… Read More

Share

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… Read More

Share

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… Read More

Share

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… Read More

Share

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… Read More

Share