Steven Englander

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.

The G-20 Meeting Was A Big Disappointment: What Happens Next

It is now all up to the ECB: "If they lowball or grudgingly meet expectations, we could face another December 4 move because market participants will see it as the equivalent of a ‘last ease in the cycle announcement’, basically ECB throwing in the towel. If they move aggressively they will catch market off guard and unwind the view that policymakers see themselves as powerless."

What Janet Yellen Could Say Tomorrow To Unleash A Market Surge

"The dovish surprise is if she explicitly removes March from the hiking calendar (which would be Draghi-esque in front running the FOMC), broadly hints at a delay or expresses concern on downside risk to long term inflation or structural stagnation. The intention would be to show US households, business and investors that the Fed has their back... It is unlikely, however, that pointing to negative rates or QE4 would work, as investors are increasingly skeptical that more of the same policy mix would be effective in hitting final goals."

Citi On Why Negative Rates Are Like Potato Chips: "No One Can Have Just One"

"Experience in other countries that have entered into this territory should sober you up on the likely economic and inflation impact. No country that has gone into negative rates has experienced major shifts in its growth and inflation profile – minor, yes; major, no. As a consequence every dip into negative rates has been followed by additional moves."