by Sometimes the news drives the price action, but sometimes the price action drives the news. If the initial rally in US stocks after the FOMC meeting had been sustained and if the dollar had continued to decline, observers would drawing a different conclusion. Because of the sell-off in risk assets, many observers are blaming the Fed’s pessimism. I do not see it that way. The median Fed GDP forecast for this year and next is above the OECD’s newest forecasts, for example, that were announced a few hours before the FOMC meeting concluded. We are talking about a market that until recently had been discounting the chances of a negative policy rate. Yes, 15 of 17 Fed members anticipate no rate increase will be necessary until after 2022. But it contained little new
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Sometimes the news drives the price action, but sometimes the price action drives the news. If the initial rally in US stocks after the FOMC meeting had been sustained and if the dollar had continued to decline, observers would drawing a different conclusion.
Because of the sell-off in risk assets, many observers are blaming the Fed’s pessimism. I do not see it that way. The median Fed GDP forecast for this year and next is above the OECD’s newest forecasts, for example, that were announced a few hours before the FOMC meeting concluded. We are talking about a market that until recently had been discounting the chances of a negative policy rate.
Yes, 15 of 17 Fed members anticipate no rate increase will be necessary until after 2022. But it contained little new information for investors. The implied yield of the December 2021 fed funds futures contract slipped a single basis point yesterday while the implied yield of the December 2022 futures contract slipped two basis points.
The fact of the matter is that corrective forces were already evident before the FOMC meeting, and with the meeting behind us, these forces had great play. In the larger picture, liquidity will likely continue to underpin risk appetites.
I chatted with Jackie Pang from Meigu TV at the end of Fed Chair Powell’s press conference yesterday. We discussed the FOMC meeting and its new forecasts. In the four-minute video, there is a forward-looking component. Next week, Brail, Russia, Indonesia are likely to cut rates, while the Bank of England probably boosts its bond-buying program. I also briefly discuss the EU Summit and the ECB’s TLTRO that could pay banks 100 bp for tapping a three-year loan facility.
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Cool Video: The Liquidity Hypothesis
Jackie Pang from Meigu TV called and wanted to talk about the seeming disconnect between Wall Street and Main Street. In this nearly 4.5 minute clip that she posted here, she gave me plenty of time to explain what I make of it.
FX Daily, June 9: Profit-Taking Gives Turn Around Tuesday Its Name
Overview: The S&P 500 turning higher on the year was the last straw before an arguably overdue bout of profit-taking kicked-in and is the dominant feature today in the capital markets. It began slowly in the Asia Pacific region. Equities were mixed, and Australia’s 2.4% rally and the 1.6% gain in Hong Kong stood out. Europe’s Dow Jones Stoxx 600 was off for a second day (~1.3%), and US stocks are trading heavily, warning that the S&P 500 may give back most of yesterday’s gains.
FX Daily, June 10: Corrective Forces Still Seem in Control Ahead of the FOMC Outcome
The pullback ins US shares yesterday has not derailed the global advance. Japanese and Chinese markets were mixed, the Hang Seng slipped, and Indonesia was hit with profit-taking, but the MSCI Asia Pacific Index eked out a small gain. It has fallen once past two and a half weeks. The Dow Jones Stoxx 600 opened higher but is falling for the third consecutive session.
FX Daily, June 11: Are Risk Appetites Satiated, or Simply Taking the Day Off?
Many observers are attributing the sell-off in risk assets today to the Federal Reserve’s pessimistic outlook, yet, as we note below, the Fed’s median GDP forecast this year is better than many international agency forecasts, including the OECD’s that was issued yesterday. Moreover, some near-term trends were already in place.
FX Daily, February 12: The Greenback Slips in Subdued Activity
Investors appear to be increasingly looking past the latest coronavirus from China as new afflictions slow. Despite the soggy close of US equities yesterday, Asia Pacific bourses are nearly all higher, led by more than 1% gains in Singapore and Thailand. The Dow Jones Stoxx 600 is at new record highs, led by consumer discretionary and materials sectors.
FX Daily, March 19: ECB’s Bazooka Support Bonds but not the Euro
Overview: It is not just that the dollar soared while stocks and bonds continued to plunge. The dollar’s strength is, in effect, a powerful short-covering rally. It was used to fund a great part of the global circuit of capital. The circuit of capital is in reverse now, and the funding currency is being bought back. The dollar’s strength is a function of the sell-off of other assets.
FX Daily, April 03: Oil Firm, Greenback Extends Gains
Overview: Global equities are finishing the week on a soggy tone despite the 2%+ gains seen in the US yesterday. The extension of shutdowns, rising contagion and fatality rate, and imploding economies weigh on prices. In Asia, Korea and Indonesia bucked the trend to most minor gains. Europe is giving back yesterday’s gains, and the Dow Jones Stoxx 600 is nearly flat on the week.
Cool Video: OIl, ECB, and Animal Spirits
I had the privilege to join Ben Lichtenstein at TD Ameritrade (from a remote location) this morning to talk about the global markets. I make four points. First, the reversal of the S&P 500 yesterday set the tone for Asia and Europe. Volatility throughout the capital markets remains elevated, even if off the peaks.
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