Tag Archives: Interest rates

The macroeconomic fundamentals have not changed much in the first three months of the year.  The US growth remains near trend, the labor market continues to improve gradually, both headline and core inflation remain firm, and the Federal Reserve remains on course to hike rates at least a couple more times this year, even though the market is skeptical.  The uncertainty surrounding US fiscal has not been lifted, and it...

If the mainstream is confused about exactly what rate hikes mean, then they are not alone. We know very well what they are supposed to, but the theoretical standards and assumptions of orthodox understanding haven’t worked out too well and for a very long time now. The benchmark 10-year US Treasury is today yielding less than it did when the FOMC announced their second rate hike in December. Thus, despite two rate...

Summary: Fed made mostly minor changes in the statement as it hiked the Fed funds rate for the third time in the cycle. The average and median dot for Fed funds crept slightly higher. There was only one dissent to the decision. The Federal Reserve delivered the much-anticipated rate hike. There was one dissent, the Minneapolis Fed President Kashkari. In the first paragraph of the FOMC statement tweaked the...

Economic Reports Scorecard The Federal Reserve is widely expected to raise interest rates again at their meeting next week. They obviously view the recent cyclical upturn as being durable and the inflation data as pointing to the need for higher rates. Our market based indicators agree somewhat but nominal and real interest rates are still below their mid-December peaks so I don’t think a lot has changed. More...

Real interest rates are nominal rates adjusted for inflation expectations. Inflation expectations are tricky to measure. The Federal Reserve identifies two broad metrics. There are surveys, like the University of Michigan’s consumer confidence survey, and the Fed conducts a regular survey of professional forecasters. There are also market-based measures, like the breakevens, which compare the conventional yield to the...

Summary: The Fed is more confident this year of stable growth and rising inflation. The new US Administration’s economic agenda is beginning to take shape, though it is not clear that consumer interests will be pursued. There are several considerations, including politics in Europe, that are driving European rates higher. The RBA and RBNZ meet next week. Neither is expected to change policy. United States The...

Summary: Greece needs to implement its commitments in the next few weeks or it faces a new crisis. The more the government implements its commitments, the less public support it draws. New elections in Greece cannot be ruled out. The problem is uncomfortably familiar. Greece has a chunky payment due to its official creditors. Reports suggest that Greece has not completed much more than a third of the measures...

Summary: Many are concerned that the dollar and interest rates have become decoupled. We are not convinced. Correlations, not to be eyeballed, are still robust. The US 10-year yield is at its highs for the year, and yet the US dollar has been struggling to gain traction.Some suggest that this means that the dollar rally is over.  Charts like this one are circulating among market participants. This  Great...

Swiss Franc The euro collapsed today, both against USD and CHF. One reason might be the new record for Swiss exports and for the Swiss trade balance. EUR/CHF - Euro Swiss Franc, January 26(see more posts on EUR/CHF, ) - Click to enlarge Sterling gains almost 2% against the Swiss Franc in 3 days, will the Pound continue to climb from here? The Pound has continued to climb throughout the week, after it was...

On what Trump’s first working day as POTUS, I had the privilege to be on Bloomberg’s Daybreak to talk about the wagers on US interest rates in the futures market. In the most recent CFTC reporting week, which ended on January 17, speculators in the 10-year note futures market reduced the record net short position. It is only the second week reduction since the end of November. Anchor Alix Steel noted that while the...