Steven Englander

ECB Preview: The Market's All-In But "There's A Significant Chance Draghi Disappoints"

Blackrock's chief multi-asset strategist summed up tomorrow's anxiously awaited ECB meeting best by noting that "what’s priced into markets is a fully fledged extension of the [bond-buying] program," but warns that, thanks to a muted reaction to the Italy vote and recent encouraging data, "there’s a significant chance the ECB disappoints markets." As bond traders bet on a six-month QE extension, Citi warns, anything less will be seen as hawkish and send EUR surging.

Bond Bloodbath Becomes Buying-Panic As Treasury Yields Tumble Most Since June

After 3 days of carnage in US Treasuries, pushing longer-dated bond yields notably above US equity dividend yield - and following both Citi and Goldman reports that Trumponomics may be less inflationary than expected (and the yield surge is tightening financial conditions) drastically, longer-dated bond yields are dropping notably in the early Asia session. 10Y yields are down 8bps - the most since June as 30Y drops back below 3.00%.

What Went Wrong Yesterday

The answer to ‘How do you stimulate the economy when there are no more conventional rate or unconventional QE/forward guidance tools?’ is ‘Broaden the set of assets that you can buy”. And while Congress may be unwilling when the unemployment rate is under 5%, they may be more willing at 7% if a recession is underway….and this means they can continue to do slow and unsteady hikes, based on the current framework.

85% Of Wall Street Expects a "Dovish Hike Signal" From Yellen Tomorrow

Earlier this week, Citi's head of G10 FX strat Steven Englander conducted a survey among 350 participants asking them what they expect from Janet Yellen's Jackson Hole speech. According to the vast majority, or 85% of the respondents, Yellen will lean toward one 2016 rate hike with hiking risk “overwhelmingly” in December even as September hiking risk is seen as “modestly underpriced."

Fed Admits Another $4 Trillion In QE Will Be Needed To Offset An "Economic Shock"

"Large-scale asset purchases and forward guidance about the future path of the federal funds rate have almost no ability to offset a shock in current circumstances, but down the road may be able to provide enough additional accommodation to fully compensate for a more limited [ability] to cut short-term interest rates in some, but not all and maybe even not most, circumstances."

How Citi Is Trading The Fed's "Mildly Hawkish" Statement

"Best to trade long USD against the USD-bloc, our favorite being long USDCAD. Also EURUSD and GBPUSD to weaken - USDJPY might be a bit mixed until Friday. The market is likely to continue bias long-USD into NFP (which is still a week away), but given the trend in jobless claims, its hard not to have "some" positive expectations for next Friday."

Citi On Yellen's Speech: "What She Did Not Say Is Dovish"

"Yellen expresses optimism throughout the speech but she doesn’t repeat her guidance from less than two weeks ago that a rate hike would be forthcoming  “in coming months." Citi adds that this on net is slightly dovish. "There is no timetable and the pluses are very vague. Unless the sky is falling in there is no way that she can express pessimism -- would be self-defeating, so you take it as a given that she will sound optimistic on hitting targets in long-term. The vagueness on the timing of hikes is what is striking."

Why Stocks Keep Rising Despite Another Rate Hike On The Horizon: One Explanation

"It would seem to us that the equity outcome in the weighted average view is a lot less positive. There are few S&P 2500 optimists even at 2.5% growth but plenty of S&P 1600 or less pessimists on the negative scenario. Bottom line – one more and pretty much done is unlikely to be as risk positive as recent asset market prices action suggests."

Will "Inevitable USD Strength" Lead To Another Market Selloff

With stocks the biggest beneficiary of the late January "Shanghai Accord", it stands to reason that the US Dollar was the biggest loser. Sure enough, overnight the WSJ writes that the "powerful rallies that have lifted stocks, crude oil and emerging markets for the past three months have one important thing in common - the falling dollar - and investors are growing anxious that it could prove to be the weak link." But is a strong dollar about to make another appearance and unleash the next leg lower in risk assets?

Citi Asks: "Are Investors Beginning To Price In QE4?"

"My conjecture is that investors have begun to price out June/July hiking risk they are beginning to reject the view that there is a high?probability fed funds path that is as shallow as the market is pricing in.  Before you get to negative rates you would have the hail Mary of QE4 which would act mainly to push down long term yields. In the past the prospect of QE supported equity markets, but there is so much skepticism at this point that the equity market reaction is negligible and the brunt of the concerns are falling on USD and long?term yields."

Your Last Minute Payrolls Preview: What Wall Street Expects (And Why It May Be Disappointed)

At 8:30am Eastern, the BLS will report the March payrolls report: the median forecast calls for a March nonfarm payrolls gain of 205k vs 242k in Feb., the high estimate is 250k, the low is 100k. The number is released three days after a particularly dovish Yellen speech, which prompted many to ask "what does the Fed know" - today's payrolls report will either provide the answer, if it is a big miss, or it will add to the confusion: if payrolls are surging, why is the Fed so concerned.

One Hedge Funds Warns The Market Will (Again) Be Sharply Disappointed By The ECB

Market discounting ECB to intervene boldly, via a combination of increased QE, LTRO, depo rate cut, without collateral damage caused on banks by deeply negative interest rates. As banks performed strongly in recent days, market may think the recent complaining about negative rates by top banks’ executives across Europe has been heard.  On the contrary, we believe deeply negative rates are coming, and are an inescapable negative for the banking sector, leading to overall weak equity markets post ECB.