Tag Archive: federal-reserve

Markets Look for Direction

Overview: The biggest development today in the capital markets is the jump in benchmark interest rates.  The US 10-year yield is up five basis points to 2.86%, which is about 10 bp above Monday’s low.  European yields are up 9-10 bp.  The 10-year German Bund yield was near 0.88% on Monday and is now near 1.07%.  Italy’s premium over German is near 2.18%, the most in nearly three weeks.  Although Asia Pacific equities rallied, led by Japan’s 1.2%...

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Week Ahead: More Evidence US Consumption and Output are Expanding, and RBNZ and Norges Bank to Hike

After two-quarters of contraction, many still do not accept that the US economy is in a recession. Federal Reserve officials have pushed against it, as has Treasury Secretary Yellen. The nearly 530k rise in July nonfarm rolls, more than twice the median forecast in Bloomberg's survey, and a new cyclical low in unemployment (3.5%) lent credibility to their arguments. If Q3 data point to a growing economy, additional support will likely be...

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Heading into the Weekend, Dollar’s Downside Momentum Stalls

Overview: The markets are putting the finishing touches on this week’s activity. Japan, returning from yesterday’s holiday bought equities, and its major indices jumped more than 2%. China, South Korea, and Australia struggled. Europe’s Stoxx 600 is firmer for the third consecutive session. It is up about 1.3% this week. US futures are also firmer after reversing earlier gains yesterday to close lower on the day. The US 10-year yield is flat near...

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Inflation

(Traveling and unable to provide a technical overview this week.) Rising price pressures, stronger and more persistent than generally expected, has been the main challenge for consumers, businesses, and policymakers. It will stay top of mind in the week ahead as both the world's two largest economies, the US and China, report July consumer and producer prices.  During the Great Depression, the central governments discovered their balance sheets,...

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Over to the BOE

Overview: Strong gains in US equities yesterday and easing fears following Pelosi’s visit to Taiwan helped lift most Asia Pacific equities, with Hong Kong leading the way with a 2% rally. Taiwan, Australia, and India did not participate in the regional rally. The Stoxx 600 is edging higher today. It was flat on the week through yesterday. US futures are a little firmer. The greenback is offered against the major currencies led the Antipodeans. The...

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Market Takes China’s Response in Stride, Risk Appetites Recover

Overview: The market is judging China's response to Speaker Pelosi's visit in a mild way and risk appetites returned. Equity markets are higher, even though Chinese shares weakened. Europe's Stoxx 600 is edging higher after two days of small loses, and US futures enjoy a firmer bias. The surge in US rates yesterday has calmed. The US 10-year yield is firm near 2.76% and the 2-year yield is up a couple of basis points near 3.07%. European yields are...

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Macro and Prices

Next week, there are three big events:  the US jobs report, the Reserve Bank of Australia meeting, and the Bank of England's meeting. That said, the final PMI readings may be more helpful this time than we often see because of how quickly it appears activity has stalled.

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EMU GDP Surprises, while the Yen’s Short Squeeze Continues

Overview: The month-end and slew of data is making for a volatile foreign exchange session, while the rash of earnings has generally been seen as favorable though weakness was seen among the semiconductor chip fabricators. China, Hong Kong, and Japanese equities fell but the other large markets in the region rose.

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A muddled message from The Fed

If you have decided to buy gold bullion or to buy silver coins in the last few months then you may have been delighted with how last night’s Fed press conference went.

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Attention Turns to US GDP, Ahead of Tomorrow’s EMU GDP and CPI

Overview: The Federal Reserve delivered its second consecutive 75 bp rate hike, and Chair Powell left the door open for another large hike at the next meeting in September. Yet, the market took away a dovish message and the dollar suffered, rates slipped, and equities rallied.

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Fed Day

Overview: Better US news from the likes of Google, Microsoft, and Texas Instruments has helped lift sentiment today and is encouraging a more risk-on mood ahead of the FOMC meeting. News that US President Biden and China’s Xi will talk tomorrow for the second time this year may be notable but does not appear to be impactful in the capital markets.

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The Fed and GDP: Week Ahead

The outcome of the Federal Reserve Open Market Committee meeting on July 27 is the most important event in the last week of July. After a brief flirtation with a 100 bp hike after the June CPI accelerated, the market has settled back to a 75 bp move. The Fed funds futures are pricing about a 10% chance of a 100 bp hike. The market anticipates that after the second 75 bp hike, the Fed will most likely return to a 50 bp hike in September.  Fed...

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Market Prices in More Aggressive Fed AND is more Confident of Rate Cuts by the End 2023

Overview: The higher-than-expected US CPI and the strong expectation of a 100 bp hike by the Fed in two weeks is propelling the dollar higher.

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Euro Tests Parity

Equities remain under pressure as investors contemplate tighter financial conditions and the risks of recession. Most of the large equity markets in the Asia Pacific region sold-off, led by a 2.7% drop in Taiwan.

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FX Daily, July 8: Abe’s Assassination Shocks the World

News that former Prime Minister Abe was assassinated while campaigning in Japan ahead of the weekend election shocked the nation and world. The immediate market impact looks minimal. Asia Pacific equities mostly advanced.

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What Happened Today in a Few Bullet Points

1. The most important thing to appreciate is that the market has moved to price not one but two cuts next year.  The first is priced into the September Fed funds futures and the second is in the Dec Fed funds futures. 

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Macro and Prices

(Combining the weekend macro commentary and price action review in one note.  Check out the July monthly.) Three economic reports highlight the week ahead:  Japan's labor cash earnings at the start of the week and the US employment report and China's CPI at the end of the week.

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Stocks Hit as Central Banks Brandish Anti-Inflation Efforts

Overview: Central banks are committed to combatting inflation even as the economies weaken. This is taking a toll on investor sentiment and is dragging down equities.

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Consolidation in FX Featured

Overview: The strong equity market rally seen at the end of last week is carrying into today’s activity. Most of the large markets in Asia Pacific rose by at least 1%.

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Market Pulse: Mid-Year Update

Note: This update is longer than usual but I felt a comprehensive review was necessary. The Federal Reserve panicked last week and spooked investors into the worst week for stocks since the onset of COVID in March 2020. The S&P 500 is now firmly in bear market territory but that is a fraction of the pain in stocks and other risky assets.

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