Wednesday brings the FOMC‘s interest rate decision. The CONSENSUS is for an increase of 25 basis points to 1.50%-1.75%. Chairman Powell, you will have a chance to explain the Fed’s decision as you engage in your first press conference 30 minutes after the announcement. The financial world will have the opportunity to assess whether you will follow the Yellen/Bernanke path of attempting to control markets or to be more respectful of the collective wisdom and allow price to be determined in the tradition of Western democratic capitalist markets. The FED chairman recently acknowledged that headwinds have become tailwinds, and, even more importantly, supported by Janet Yellen’s confidant, Governor Lael Brainard. The volte face by Brainard shook the markets into the belief that the FED would actually raise rates FOUR times or more in 2018. BUT IF I WERE YOU CHAIR POWELL I WOULD RAISE 50 BASIS POINTS TOMORROW (with this CAVEAT).
Posts Tagged ‘RBNZ’
Notes From Underground: Dear Chairman Powell,
March 20, 2018Notes From Underground: A Quick Take On Today’s Key Points
March 23, 2017The vote on the Trump health care plan is important only from the perspective of what the Freedom Caucus was promised in return for acquiescing to the desires of the White House. President Trump is desirous of a win, any win and the Freedom Caucus seems to know they have great leverage in the current political scrum. Whatever the House passes the Senate will have home field advantage and last bat so the initial Trump victory will Pyrrhic at best. What was compromised to assuage the conservative wing of the Republican party? How far will Trump have bent to bring this deal to fruition? The strident nature of the Freedom Caucus has been elevated and what value was extracted?
Notes From Underground: Consensus is the Last Refuge of Cowards (Michael Crichton)
April 27, 2016Today the Fed delivered as expected, leaving rates unchanged and the market conjecturing about the sincerity of the FED’s data dependency (again). Some analysts and algo readers initially thought the FOMC statement was “hawkish” because the FED removed most of the rhetoric about the headwinds of international global and financial developments. I say most because the Fed left in “net exports have been soft.” This is either a concern about the lack of global growth and/or an overly strong U.S. dollar. It is MY OPINION that the Fed removed the language about international financial risks as an offering to the HAWKS as a way to get consensus.
Notes From Underground: The RBNZ Didn’t LET IT BE. Will Mario Draghi Lean on the Taxman?
March 9, 2016Two central banks announced interest rate decisions today: the Bank of Canada (BOC) and the Reserve Bank of New Zealand (RBNZ). The BOC left rates at 0.50% while the RBNZ SURPRISED markets by lowing its official cash rate by 0.25% to 2.25% as Governor Graeme Wheeler revealed concerns about a slowing Chinese economy and the ever-increasing global financial risks. There was no specific mention about the KIWI but Wheeler voiced concerns about the downward pressure on DAIRY EXPORT PRICES. The KIWI dropped 2 percent against the U.S. and Australian dollars following the surprise move but the explicit notation of slowing Chinese growth should be an alarm for those concerned about the impact of China on global commodity prices.
Notes From Underground: Volatility Into A Holiday Market–Small Boats Stay Close To Shore
December 9, 2015WARNING: Put on your life lines, foul weather gear and be ready for the boom to come flying about (thanks Whitewave). There are violent winds blowing in the financial seas as equity markets are giving warning that something is amiss. The 200-day moving averages for the DAX, CAC, Nikkei and SPOOS succumbed to selling pressure in synchronized fashion. The Dow Transportation Index looks atrocious, especially when viewed in terms of the steep drop in energy prices. Lower fuel costs are historically a boon to trains, planes and automobiles and most especially trucks. Lower fuel costs lead to increased profits for freight haulers (h/t American Limey and Professor Waspi).
Notes From Underground: The Shot Heard Round the World
October 26, 2015It was ECB President Mario Draghi who declared war on the German economic model of GROWTH THROUGH AUSTERITY, but it was the Chinese central bank that fired the first real shot in response to the “intervention” by Super Mario. As usual, Draghi proposed an increase in the ECB QE program (possibly in December) and also mentioned taking deposit interest rate even more negative. The EURO, of course, depreciated by as much as 3 percent while Draghi stoked the fires of a possible liquidity increase.
Notes From Underground: Some Quick Hits Before the FOMC
April 28, 2015Tonight is a brief set of bullet points as I have been sidelined with a sinus infection from the high pollen counts. But the world continues to spin (as does my pillow). The Greek situation continues on with the same cast of characters shouting at each other about prior promises made and the need to adhere to the previous economic and political efforts for Greek solvency. We are getting close to the end because Prime Minister Tsipras launched his final salvo with the Brussels Brigade. It is what NOTES FROM UNDERGROUND offered up as the third rail of European politics: SYRIZA WILL CALL A REFERENDUM ON ANY DEAL STRUCK WITH THE TROIKA.
Notes From Underground: What Has the Bank Of Japan Wrought?
November 2, 2014Late Thursday night, the BOJ surprised the markets with an acceleration in the pace of increasing the monetary base. The bank will increase its asset purchases to 80 trillion yen from a previous annual amount of 50-60 trillion yen. The bank will also purchase ETFs and J-REITs at an added 3 trillion yen a year, a massive amount of increase of its balance sheet. In Japan the BOJ‘s program is referred to as QQE for it is both a quantitative and qualitative program. As it is pointed out, the BOJ will wind up owning 75 percent of the JGB market as banks and pension funds unload BONDS onto the ultimate buyer of last resort. When Japan was in a deflationary economy, owning BONDS made perfect sense as negative prices gave rise to REAL HIGHER YIELDS.
Notes From Underground: The FOMC Is a Meaningless Statement
October 29, 2014Why do I say this? As expected, the FOMC ended QE3 and left in the forward guidance of “considerable time.” Some analysts believe that the balance of the statement was HAWKISH because the phrase of “significant underutilization of labor resources” to “underutilization of labor resources is gradually diminishing.” The problem is that Chair Yellen has adopted the Labor Market Conditions Index (LMCI) and its 19 variables so without a press conference or until we read the FOMC minutes we have no basis for the change in “significant underutilization” language. The lack of a press conference left investors dazed and confused because there was no explanation for the Fed’s decision. In September we heard about the headwinds of global slowdowns and a strong dollar, but there is no a word about GLOBAL HEADWINDS in the Fed’s statement.
Notes From Underground: Its a Very Cold Day In July … When Bundesbank Capitulates
July 23, 2014The financial press is filled with articles about the recent EURO weakness. During the last week the EU currency has fallen about 1.5 percent. Many pundits have opined that it is the Ukraine situation and Gaza that have made investors uneasy, thus the move into U.S. dollars. In a July 22 Bloomberg article, “Draghi Cedes Euro Control to Yellen on Fed Bets,” it is suggested that the DOLLAR is rising in anticipation of moves by the FED, especially now that the ECB has gone to negative yields on reserves. The problem for the Fed argument is that yields in the U.S. have actually softened during the last week and Fed communication has been muddled over when interest rates might possibly rise. When the ECB announced a negative interest rate June 5 the EURO/DOLLAR made a low of 1.3503. Today we are trading at 1.3465, a little below the 1.35 low but well below that day’s close of 1.3650.