Notes From Underground

While waiting for the FOMC‘s rate decision on Wednesday, I am posting a new PODCAST in which I discuss the global macro situation with a woman who whose work I had not been familiar. Nomi Prins has written a new book called Collusion, in which she investigates the role of central banks in its current predicament. I thoroughly enjoyed the 51-minute podcast as Richard Bonugli does a fine job of allowing the guests to discuss in deep detail. I will certainly be buying the book (it was released Tuesday) as it explains in detail what the central banks have accomplished in destroying the signalling mechanisms of capitalism and markets. The Financial Repression Authority has been an important platform for allowing deep discussion on matters of global investment concerns. Enjoy the discussion as I await my readers feedback on the issues we covered and hope it will lead to profitable trade opportunities.

***Wednesday brings a fresh FOMC statement but there will be no press conference so analysts following the FED are expecting no policy change. The recent rally in the DOLLAR will provide a cushion for the Powell Fed to remain on hold. The stock market’s recent failure to rally with strong earnings announcements will not sway this FOMC at all for as we have opined Chairman Powell is not a knee-jerk reactionist to the whims of the equity market fluctuations. The Greenspan put is kaput! Expect to read in the FED statement that tariffs pose a potential headwind to growth but there is presently too much uncertainty about White House intentions as the enforcement of tariffs was delayed another 30 days. Economic data has been mixed of late so staying the course is certainly a worthy exercise. The recent rise in short-term yields, which has finally provided support to the U.S. dollar with some support also allowing the FED to be more cautious. GOLD has followed the currencies lower as short-term yields have “actually” termed real yield POSITIVE so the test of GOLD‘s 200-day moving average on Tuesday is in sync as the EURO currency also tested its 200-day moving average.

The synchronicity of these two moves provides CREDIBILITY to the theme of short-term interest FINALLY weighing on previous established positions. I do not accept the lessening of geopolitical concerns as the reason because global tensions are INCREASING as the Middle East is becoming more unstable hour by hour. The Koreas garner most of the attention but the PRAIRIE FIRE of the Syria situation becomes more tinder set for an easy ignition. Higher interest rates as seen through the lens of a flattening yield curve are the predominant concern. Patience is recommended as the market has to digest the FOMC and the unemployment data on Friday.

On Monday night, the Reserve Bank of Australia (RBA) FAILED to raise rates even as conventional wisdom perceived a rate increase as a 50/50 possibility. While the RBA is fairly optimistic about global growth: “Chinese economy continues to grow solidly”; “The Bank’s central forecast for the Australian economy remains for growth to pick up”; “Employment has grown strongly over the past year.” It’s a strong growth forecast but yet the RBA refrains from raising rates that were set to forestall the ripples from the global financial crisis.

But the tell may be this paragraph: “The Australian dollar has depreciated a little recently,but on a trade-weighted basis remains within the range that it has been in over the past two years. AN APPRECIATING EXCHANGE RATE WOULD BE EXPECTED TO RESULT IN A SLOWER PICK-UP IN ECONOMIC ACTIVITY AND INFLATION THAN CURRENTLY FORECAST,” (emphasis mine).

Another central bank in contravention of the G-20 agreement as monetary policy is determined in reference to potential impact on its currency. Only the FED fails to discuss global conditions. Remember the Trump tweet about the ruble/yuan and rising interest rates.

Tags: Australian dollar, Fed, FOMC, Gold, RBA, U.S. Dollar

This entry was posted on May 1, 2018 at 7:43 pm and is filed under Currency, Fed, RBA. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.