Archive - Mar 19, 2014 - Story

Concerns about Fed "over-optimism" admissions and shortening the time from taper to rate-hike sparked a major algo-surging risk-off dump in US equities... but that 1% dip was bought with hands and feet as reassuring figures emerged on screens to pat traders heads gently. Stocks bounced but then faded into the close as Yellen's first press conference saw the worst market performance since Bernanke's May Taper hint. Bonds had a bad day... massive bear-flattening occurred on the release with 5s30s -12bps (5Y +16.5bps, 30Y +4.5bps) to 19-month lows. The USD was smashed 0.75% higher - its biggest gain in 7-months. Gold (and silver) dropped (down 4% on the week) as copper short-squeezed up to key resistance after early significant weakness.

From Jan Hatzius, who needs to coach Yellen much better next time around. Incidentally, this is Goldman's take on the statement and not on Yellen's disastrous press conference: "BOTTOM LINE: The March Summary of Economic Projections (SEP) indicated a more hawkish path of the policy rate than that seen in the December SEP. The statement included a move toward qualitative guidance, but was roughly neutral on net in our view."

"Miss me yet?"

Wondering why stocks aren't soaring - despite the efforts of every asset-getherer and TV talking head to explain how the Fed is as dovish (if not more dovish) than ever? Perhaps the answer lies in the following table... when the fed admits to being "over-optimistic" and focuses the market on a 6-month period after taper before rates will rise, maybe there just aren't enough people at 33 Liberty to push the green buttons...

One just can't make this up:

• YELLEN SAYS WEATHER HAS WEAKENED ECONOMY IN FIRST QUARTER
• YELLEN SAYS MOST ON FOMC SEE WEATHER WEAKNESS DISSIPATING

Luckily, the Fed is far better at forecasting the weather than it is at micromanaging central planning of a $17 trillion economy.

In case you misunderstood and judged the market's reaction to Janet Yellen's first FOMC statement, the ultimate Fed mouthpiece is out with a few clarifying words (well 712 words posted in under 4 minutes). The Wall Street Journal's Jon Hilsenrath clarifies "The Fed stressed it has not changed its plan to keep interest rates low long after the bond-buying program ends," and added further that "the Fed said explicitly for the first time that it likely would keep short-term rates lower than normal, even after inflation and employment return to their longer-run trends." While noting a bigger consensus of members around a 2015 rate 'liftoff', Hilsenrath is careful to point out that the Fed also blamed the weather for not having a clue.

Confused why the market is confused by the latest FOMC jibberish, whose "new and improved" forward guidance is a total disaster, which was to be expected now that the old has been scrapped and is dead and buried? It's simple: there were 877 words in the FOMC statement, which is an all time record. Even the Fed is having problems explaining to itself what it means. And yes, that includes the first instance of the scapegoating word "weather."

Drum roll please... A shift from quantitative thresholds to hand-waving along with lower growth expectations and lower unemployment expectations (and more Fed members seeing rate hikes in 2015) - plenty of confusion in there for everyone... Over to you Janet...

While the talking heads are desparate to maintain the myth that this statement is dovish, the fact is, the flow of free money from the Fed is slowing and confusion of the outlooks for growth (and more Fed member see rate hikes in 2015) means Yellen's dovishness is being questioned aggressively by the bond and stock markets. The S&P 500 fell 12 points. Treasuries are getting clubbed with major short-dated selling (and bear-flattening). The dollar is surging and gold is down modestly.

As expected Janet Yellen's first FOMC statement showed another $10bn taper (more tightening according to Jim Bullard) but the wordy shift from quantitative thresholds to "we'll know it when we see it" qualitative guidance is relatively dovish (despite improved economic outlooks):

• *FOMC SEES `SUFFICIENT UNDERLYING STRENGTH' IN ECONOMY
• *FOMC SAYS IT WILL LIKELY REDUCE QE IN `FURTHER MEASURED STEPS'
• *FED: LOW TARGET RATE APPROPRIATE FOR CONSIDERABLE TIME POST-QE
• *MORE FED OFFICIALS SEE AT LEAST 1% FED FUNDS RATE END OF 2015
• *FED DROPS 6.5% JOBLESS THRESHOLD FOR RAISING FED FUNDS RATE

While Bernanke's last meeting appeared full of disagreement; this time less so (as Plosser and Fisher appeared not to dissent). Full redline to follow.

Pre-FOMC: S&P Futs: 1873.5, Gold $1337, 10Y 2.712%, USDJPY 101.65

As traders, economists, and TV talking-heads parse every word of Janet Yellen's first FOMC statement for hints at when the punchbowl (if ever) will be removed, there is - as the following chart clearly shows - only one thing that really matters...

Now that the non-fighting and the Crimean annexation is over, all that's left are cheap words and hollow threats.

• UKRAINE TO REMOVE MILITARY FROM CRIMEA TO MAINLAND: PARUBIY
• UKRAINE TO FORTIFY MILITARY ON EASTERN BORDER: PARUBIY
• UKRAINE TO STRENGTHEN SECURITY AT NUCLEAR POWER PLANTS
• UKRAINE TO SEEK COMPENSATION FOR RUSSIA SEIZING ASSETS

Meanwhile: U.S. PREPARED TO IMPOSE FURTHER COSTS ON RUSSIA, CARNEY SAYS. Costs - drink!

It would appear that yesterday's announcement by NY AG Schneiderman (who appeared to find Virtu's practically flawless trading record too much to bear) has prompted further investigations into HFT shenanigans by regulators. As WSJ reports, regulators are taking aim at the relationship between high-frequency trading firms and major exchanges, examining whether the preferential treatment market operators offer the firms puts other investors at a disadvantage. The CFTC probe is focused on complicated, often opaque incentive programs that give high-volume trading firms financial benefits such as discounts on fees the exchanges charge to execute trades.

Ukraine acting President Oleksandr Turchynov has some stern demands of his Russian occupying force neighbors:

• *UKRAINE'S TURCHYNOV SEEKS RELEASE OF DETAINED CRIMEA PERSONNEL
• *UKRAINE PLEDGES 'ADEQUATE MEASURES' IF PERSONNEL NOT RELEASED

Furthermore, he promisese to take "appropriate steps" unless Crimean authorities free all hostages within 3 hours (by 3pmET). For now, Russian forces refuse to negotiate. Meanwhile, Russia is standing both militarily and now economically behind Crimea as it affirms it will cover the region's budget deficit.