Some were concerned earlier today, when SF Fed's John Williams said that he sees about 2-3 rate hikes in 2016, followed by another 3-4 in 2017, suggesting a grand total between 5 and 7 more rate hikes over the next 18 months. However, those fears were promptly dissiptated when as Williams himself admitted during the reporter Q&A, he - like virtually everyone else at the Fed - has no idea what he is talking about.
Following last week's lull in global macro, it’s a busy start to the week in which we get the latest deluge of global flash PMIs, while the US economic calendar is loaded with New Home Sales data, Trade Balance, Initial Claims, UMichigan sentiment and the revised US Q1 GDP print on Friday. But perhaps the most expected event will be Yellen's speech on Friday at Harvard's Radcliffe, where the Fed chairman is expected to reveal some more hints on the upcoming rate hike.
"It is hard to deny that there seems to be something going on here. It could either be a bored market triggering a momentum trade that feeds the narrative or it could be the market has sniffed out a change of tone from the Fed as these new Fed events get scheduled.... With the Yellen speech not coming until June 6, and the UK Referendum a week after the FOMC, I can’t see much logic to a June hike. Hiking a week before the UK vote seems like a totally unnecessary risk that this extremely risk-averse Fed would never take. But July makes perfect sense if they want to get a hike out of the way before election mania."
After two violently volatile days in which the market soared (Monday) then promptly retraced all gains (Tuesday), the overnight session has been relatively calm with futures and oil both unchanged even as the BBG dollar index rose to the highest level since April 4. This took place despite a substantial amount of macro data from both Japan, where the GDP came well above the expected 0.3%, instead printing 1.7% annualized, which pushed stocks lower as it meant the probability of more BOJ interventions or a delay of the sales tax hike both dropped. Meanwhile, in China we got proof of the ongoing housing bubble when new property prices were reproted to have soared 12.4% Y/Y in April, which in turn pushed the local stock market to two month lows amid concerns the rampant housing bubble sector could divert funds from stocks. Yes, China is trading on the "risk" one bubble will burst another bubble.
After last week's key event, the retail sales number, which the market discounted as being too unrealistic (and overly seasonally adjusted) after printing at a 13 month high and attempting to refute the reality observed by countless retailers, this week has a quiet start today with no data of note due out of Europe and just Empire manufacturing (which moments ago missed badly) and the NAHB housing market index of note in the US session this morning.
One would have to be blinded from either denial or ignorance not see the escalating political and military tension between the U.S. and Russia/China. While the U.S. media spins the story into a tall-tale in which BRIC nation leaders are the provocateurs, the truth is that the U.S. has transformed its illegitimate “war on terror” into war on the world in a last-gasp attempt hold onto the economic and geopolitical hegemony it has enjoyed for several decades.
In the traditional post payrolls data lull, we’re kicking off what’s set to be a much quieter week for data this week with nothing of note due to be released in the US on Monday, however the week picks up with notable economic dataon NFIB small business cofidence, Import prices, PPI and culminates with Friday's retail sales report, UMichigan sentiment and business inventories.
Perhaps the one last chance at saving the United States is embracing the truth – the truth as it is, and not the “truth” the U.S. Government would have you believe.
"none of the structural headwinds that seem to have plagued the global economy in recent years (a mix of excessive indebtedness, deteriorating demographics, rising political uncertainty as well as the end of the China growth miracle and the commodity supercycle) have been resolved."
While there was no unexpected overnight central bank announcement unlike yesterday's surprise by the RBA which unleashed volatility havoc in the FX market, which promptly spilled over into all asset classes, overnight stocks around the world saw another leg lower without a tangible catalyst, while EM currencies fell to a one-month low after two Fed presidents raised concern investors had become too complacent in their belief that U.S. interest rate raises will stay on hold. Or perhaps all that is happening is that after ignoring Trump, the market is starting to finally price in the possible reality of the Donald in the White House (although as Jeff Gundlach pointed out, Trump would be a far better president for the economy and the market than Hillary or Bernie).
If nobody is working in one out of every five U.S. families, then how in the world can the unemployment rate be close to 5 percent as the Obama administration keeps insisting? The truth, of course, is that the U.S. economy is in far worse condition than we are being told.
How long will interest rates stay low? We expect the Fed to keep rates very low for a long, long time.
While the market is still enjoying the post-NFP weekly data lull, economic data starts to pick up again in the coming days, alongside the start of the reporting season. Below are this week's key events.
It is commonly assumed that the gold price and interest rates move in opposite directions. Like all assumptions about prices, sometimes it is true and sometimes not. The market today is all about synthetic gold, gold which is referred to but rarely delivered. The current relationship is therefore one of relative interest rates, because positions in synthetic gold are financed from wholesale money markets. This is why a rumour that interest rates might rise sooner than expected, if it is reflected in forward interbank rates, leads to a fall in the gold price. To the extent that this happens, the gold price has been captured by the modern banking system, but it was not always so.
After The Fed jawboned the world into the largest aggregate net short position in Treasuries in Q4 since 2010, its rapid realization that all is not well in the real world - and subsequent talking (and walking) back of rate-hike expectations - has sparked the biggest short-squeeze in 6 years and sent Treasuries up by the most since 2012. With odds collapsing for any more rate-hikes in 2016, as Yellen admits their forecasts are worthless, it seems - just as in 2010 - the bonds shorts have a way to go.