Bernanke's comments give market cause to re-think its outlook for tapering and eventaul rate hike. Here's why and what it means.
From 'Tapering' to concluding asset-purchases, and from rate-hike-expectations to exit strategies (and what other indicators may be worth watching), BofAML previews the all-important release of the FOMC's last meeting minutes.
Today, something happened that has not happened since the Lehman collapse: the 1 Month Gold Forward Offered (GOFO) rate turned negative, from 0.015% to -0.065%, for the first time in nearly 5 years, or technically since just after the Lehman bankruptcy precipitated AIG bailout in November 2011. And if one looks at the 3 Month GOFO, which also turned shockingly negative overnight from 0.05% to -0.03%, one has to go back all the way to the 1999 Washington Agreement on gold, to find the last time that particular GOFO rate was negative.
Confused what the (non) news of today's "unprecedented" forward guidance announcement by the ECB means? Shocked that the ECB is about as dovish as it has ever been? Then SocGen is here to explain, if only for all those who are seemingly stunned that the ECB isn't planning on hiking rates, or even "tapering" any time soon.
The all important ECB press conference is set to begin momentarily. Will Draghi answer questions regarding the readiness of the OMT's use in Portugal whose short end has exploded this morning, or will he be forced to wait for the German court's decision first? Or maybe Draghi will finally have some comments on either the ongoing Monte Paschi scandal or the recently revealed Italian derivative debacle which took place under Draghi's watch. We somehow doubt it...
*DRAGHI SAYS ECB RATES TO STAY LOW FOR EXTENDED PERIOD OF TIME
*DRAGHI: IMPROVEMENT IN FINANCIAL MARKETS SHOULD REACH ECONOMY
*DRAGHI SAYS INFLATION RATES MAY BE VOLATILE THROUGHOUT YEAR
*DRAGHI: RECENT TIGHTENING OF MARKET RATES MAY WEIGH ON GROWTH
No surprise in today's most important economic report: just as we predicted first thing this morning, "In keeping with the tradition of Baffle with BS, we expect the ISM to come in well above expectations to offset the major Chicago PMI disappointment." Just as expected, the headline June ISM just printed at 50.9, a beat of expectations of 50.5, and up from May's 49. And just to make sure everyone is completely baffled with unbelievable BS, while the New Orders number rose from 48.8 to 51.9, and Production (+4.8), Prices (+3), Inventories (+1.5), and Deliveries (+1.3), all rose, it was the time of Employment Index to drop from 50.1 to 48.7: the first sub-50 print since September 2009. In other words, just as every week/strong economic report is offset by a matchin strong/weak economic report a few days later, expect this Friday's NFP to come in blistering and to deny the ISM weak jobs number especially since Goldman is now warning of a "disappointment" to consensus (and with that put the Taper tantrum back front and center).
Richmond Fed's Lacker: "Falling Markets Should Not Be Too Surprising... Further Volatility Seems Likely"Submitted by Tyler Durden on 06/28/2013 09:24 -0400
"Bond and stock markets fell sharply in response, but that should not be too surprising. The Chairman’s statement forced financial market participants to re-evaluate the likely total amount of securities the Fed would buy under this open-ended purchase plan — in other words, how much liquor would ultimately be poured into the punch bowl. Market participants also had to reconsider their estimate of when the Federal Reserve would begin to remove the punch bowl by raising interest rates. These reassessments appear to have warranted price changes across an array of financial assets. As market participants gain additional insight from the words of Federal Reserve officials or by policy actions in coming quarters, further asset price volatility seems likely." - Richmond Fed's Jeffrey Lacker
Gold miners hedged by selling their production forward during the bear market. Later, when the price was rising, they bought back their hedges at great expense (Barick alone wasted $6B). There is a better way.
EB heads to TV...and reflects on predictions from 2009's "A Grand Unified Theory of Market Manipulation"
We are astounded with the number of people saying that the Fed didn't say anything new. These people must be living in Borneo and far out into the jungle. The Fed came out and said as clearly as any Fed has ever said; "We are going to unwind the trade." Yes, sure, there was the usual huff and puff about a change in market conditions could change our viewpoint but that is not relevant. What was relevant is that the Fed stated and quite clearly that, "The party is over." Because we live in a global economy we will now also get impacted by China and Europe. The flow of money had protected our shores but now we will be exposed and the recession in Europe and the growth rate in China, probably around a real 3.5%-4.0%, is going to come bouncing into America. Liquidity has been the one and only god and the Fed has now told you that this god is going to close up shop.
If the June Empire Fed index was a humiliating embarrassment to whoever collates the data, with only the headline number rising even as all index components plunged, and was merely released to baffle with BS some more before the FOMC meeting, today's Philly Fed release will surely shock anyone who believes the markets and the economy are still correlated. Printing at 12.5, this was a surge from May's -5.2, far above the -2.5 expected, the highest print since April 2011, and the biggest beat of expectations since October 2011. When "Baffle with BS" fails, just baffle with BS some more. Of course, keep in mind that while in previous months the plunging Philly Fed led to a bad news is good news outcome, today's big beat will merely reinforce the hawkish Ben view, and encourage yet another Taper Tantrum.
Who though that a term we coined over a month ago would suddenly get so much airplay: why, it was none other than billionaire hedge fund investor David Tepper who said days later (and just in time to top tick the market) not to fear the taper, that it is a bullish sign. Looks like it wasn't. But at least Tepper sold everything he had to sell by now so someone is happy. As for what happens next, nobody still has any idea, although the first, and so far best, post-mortem of Bernanke's predicament comes from SocGen, whose opionion is simple enough: FOMC on track for September tapering.
And yet another baffle with absolute and unbelievable BS economic number is out, this time the Empire Fed index which magically spiked from -1.43 to 7.84 on expectations of a 0.00 print. We say magically, because besides the headline number, virtually everything else was down! To wit: New Orders down, Shipments down, Unfilled Orders down, Delivery Time down, Inventories down, Number of Employees down, Avg Workweek down, should we continue? The Empire Fed report admits as much: "The general business conditions index—the most comprehensive of the survey’s measures—rose nine points to 7.8. Nevertheless, most other indicators in the survey fell." Almost as if the NY Fed apologized for having to make up headline numbers.
"I am going to hit on some of the landmines that you can encounter within order-matching engines, and then I am going to give a forecast on, at least from my perspective, what’s going to happen over the course of 2013"
With most market participants (what's left of them) traditionally narrowly focused on one specific asset class, be it stocks, bonds, rates, or commodities, they sees a few trees but miss the whole forest - a perspective which has to include all cross asset perspectives, which in our day and age is quite complicated, to say the least, due to the prevailing and oftentimes irreconcilable cognitive biases among such traders (all of which tend to interpret Bernanke's market signaling in their different way). So courtesy of Citi's Stephen Antczak, here is a comprehensive summary how every single asset class is viewing the market right now.