en Traders Are Throwing Up All Over This Market: "It Feels Like The Algos Are Hooked Up To Tinder" <p>We can't stop laughing after reading this note from Bloomberg's Richard Breslow for one simple reason: in under 350 words it summarizes everything we have said since our initial "big" article from April 2009, "<a href="">The Incredibly Shrinking Market Liquidity, Or The Upcoming Black Swan Of Black Swans</a>" in which we predicted how the onslaught of HFT would make a farce of trading at the micro level, and all our posts since then condemning central bank intervention, making a mockery of fundamental analysis at the macro level.</p> <p>Good job Richard, and we are certainly happy that slowly but surely, everyone is finally <em>getting it.</em></p> <p><em>From Richard Breslow</em></p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong>Liquid (Dis)Courage</strong></p> <p>&nbsp;</p> <p>Back in 2008, markets would take a theme and race with it for two to three days before a new piece of news made traders pivot en masse in the other direction. Everyone searching desperately for an answer to the existential question of economic survival. Investors found out that their well-diversified portfolios were merely different expressions of being long global growth. In that context, it made a lot of sense that everything moved together. </p> <p>&nbsp;</p> <p>Today we have a different dynamic. <strong>No one is trading unless they have to or have microwave circuits for brains</strong>. Pension funds and endowments have tried to insulate their holdings from demanding tinkering. <strong>There aren’t stock-picking debates around the investment committee tables.</strong></p> <p>&nbsp;</p> <p>Banks are less active, and even fat fingers just can’t keep up. <strong>It’s left the field open to computers who have no investment horizon. </strong>If that were all there was, it might be sustainable for short periods. </p> <p>&nbsp;</p> <p>But, wait, there’s more.</p> <p>&nbsp;</p> <p><strong>Policy makers are visibly flailing. Yet the system’s foundation rests on a presumption of their expertis</strong>e. It’s what allows the leaps of faith necessary for financial transmission functions to work. <strong>Grand experiments, like the insanity of negative rates, are seen merely as the latest in making it up as you go along.</strong></p> <p>&nbsp;</p> <p>All this adds up to a genuine liquidity crisis. <strong>Churn and burn is being mis-portrayed as solid volume. </strong>In fact, as Goldman’s President Cohn said yesterday on Bloomberg TV, “small amount of buying and selling in any market today had a dramatic impact.”</p> <p>&nbsp;</p> <p>There was logic in the “Harry Met Sally” delicatessen scene when the woman said “I want what she’s having.” <strong>That’s how we used to trade</strong>. In this environment, <strong>it feels like the algos are hooked up to Tinder</strong>, which is actually highly combustible material and we are all getting burned.</p> <p>&nbsp;</p> <p>My blessing for Fed Chair Yellen today, is to say something that both she and the markets can hold to. If her imperative is full employment and wages, where do we stand?<strong> If it is still merely equity prices, be candid. The truth will set you free.</strong></p> </blockquote> <p>Sorry Richard, it's too late to change anything now. Just sit back and relax: a change, if any, can only come after the next, and biggest ever, market crash.</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="1280" height="1024" alt="" src="" /> </div> </div> </div> Black Swan Black Swans HFT Market Crash Wed, 10 Feb 2016 16:31:31 +0000 Tyler Durden 523281 at Market Angry About Yellen's "Is NIRP Legal" Confusion <p><a href="">Just as we detailed last week,</a> and it appears Rep. Hensarling has been reading... To wit:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><div class="quote_start">&nbsp;</div> <div class="quote_end">&nbsp;</div> <p>&quot;There are several potentially substantial legal and practical constraints to implementing a negative IOER rate regime, some of which would be binding at any IOER rate below zero, even a rate just slightly below zero. Most notably<strong>, it is not at all clear that the Federal Reserve Act permits negative IOER rates, and more staff analysis would be needed to establish the Federal Reserve&rsquo;s authority n this area</strong>.&quot;</p> </blockquote> <p><em>No legal authority? No problem. Just call in Mario Draghi&#39;s lawyer, or any other legal representative of Goldman Sachs and/or its former employees, and whatever amendments need to be made to the Federal Reserve Act, will be made. </em></p> <p>Because, when pressed on The Fed&#39;s legal authority to take interest rates negative, Janet Yellen gushed that <strong><em>&quot;Fed authority for negative rates is still a question.&quot;</em></strong> This appears to have been taken as bad news by the market (cutting off the potential easing paths of the future in a world of NIRP), and stocks, crude, USDJPY have all tumbled.</p> <p>&nbsp;</p> <p>Furthermore, she sounded a little hawkish:</p> <ul> <li><strong>*YELLEN: I DON&#39;T EXPECT THE FOMC WILL FACE RATE-CUT OPTION SOON</strong></li> <li><strong>YELLEN: I DON&#39;T THINK IT WILL BE NECESSARY TO CUT RATES</strong></li> </ul> <p>The reaction - more disappointment... as USDJPY crashes...</p> <p><a href=""><img height="532" src="" width="600" /></a></p> <p>&nbsp;</p> <p>It is clear that her NIRP confusion has carry traders concerned as USDJPy plunges. As BofA details,</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><strong>We previously recommended selling USD/JPY above 120.88 given the &quot;Kuroda&quot; oversold bounce. The</strong> move has quickly occurred and for this week we can estimate closing support of the 100wk average and cloud of 114.71-114.98. This area has been broken intraweek.</p> <p>&nbsp;</p> <p><a href=""><img height="337" src="" width="600" /></a></p> <p>&nbsp;</p> <p>Holding it by the end of week would be an indication of a possible bounce next week. <strong>Breaking it and the trend may accelerate to levels shown on the next page of 114.35, 113.03 and 111.90.</strong></p> </blockquote> <p>Bear in mind that one week before The Bank of Japan unleashed NIRP, they also denied it would do so:</p> <p><img height="114" src="" width="600" /></p> <p>&nbsp;</p> <p>And then did it...</p> <p><img height="142" src="" width="600" /></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="966" height="836" alt="" src="" /> </div> </div> </div> Bank of Japan Crude Federal Reserve goldman sachs Goldman Sachs Janet Yellen Japan Wed, 10 Feb 2016 16:09:11 +0000 Tyler Durden 523280 at Chris Christie To Suspend Presidential Campaign; Needs "Deep Breath" <p>And another one bites the dust.</p> <p>On the heels of Tuesday night's New Hampshire primaries that saw Donald Trump sweep to victory over a GOP field where no other candidate came close to challenging the brazen billionaire, New Jersey Governor Chris Christie is set to suspend his campaign.&nbsp;</p> <p>As CNN reports, Chrisitie's sixth place finish in New Hampshire pretty much put the nail in the coffin for the governor. "Failure to qualify for next debate, lack of money make it impossible to continue," <a href="">Bloomberg writes</a>.&nbsp;</p> <p>"<strong>We’ve decided that we’re going to go home to New Jersey tomorrow and we’re going to take a deep breath</strong> and see what the final results are tonight because that matters,” Christie said last night. “By tomorrow morning and tomorrow afternoon we should know.”</p> <p>As <a href="">Bloomberg goes on to note</a>, "Christie’s pitch as a proven governor and federal prosecutor didn’t catch on" among voters who are apparently infatuated with so-called "protest candidates" who are seen as offering real change and an opportunity to alter business as usual inside the Beltway. "[His]&nbsp;departure would make him the latest in the list of hopefuls to exit the crowded field. Following disappointing showings in Iowa, Kentucky Senator Rand Paul, Senator Lindsey Graham of South Carolina and former Pennsylvania Senator Rick Santorum left the field."</p> <p>At least Christie can say he went out with a bang. His attacks on Marco Rubio during the final GOP debate before the primary are credited with derailing the senator after he became the establishment's preferred pick for the nomination following a strong showing in Iowa.&nbsp;</p> <p>After a town hall meeting on Sunday, Christie said the following about his ill-fated bid for the White House:&nbsp;“<strong>It depends on how you define losing</strong> and I haven’t defined it yet."&nbsp;</p> <p>Allow us to help out: we define "losing" as not getting as many votes as other candidates.&nbsp;</p> <p>* &nbsp;* &nbsp;*</p> <p><iframe src="" width="560" height="315" frameborder="0"></iframe></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="323" height="220" alt="" src="" /> </div> </div> </div> Donald Trump Nomination South Carolina White House Wed, 10 Feb 2016 16:03:50 +0000 Tyler Durden 523279 at John Mack: Don't Worry About Deutsche Bank, It Will Be Bailed Out By The Government <p>When it comes to government bail outs of insolvent banks few are as qualified to opine as John Mack who was CEO of Morgan Stanley when the bank, along with all other U.S. TBTF banks, was bailed out with a multi-trillion rescue package in the aftermath of the Lehman failure. Which is why it was illuminating, if not surprising, that during an interview with Bloomberg TV discussing the future of Deutsche Bank, John Mack said that "<strong>there’s no question in my mind, it is absolutely good for every penny</strong>." In other words, "Deutsche Bank is fine."</p> <p>Why is he so confident? According to Mack, "<strong>this idea that I heard yesterday, the possibility of not making their interest payments, it’s just absurd. The government will not let that happen</strong>." </p> <p>Said otherwise, <em>it will be bailed out</em>. One wonders if Germany's citizens were polled before John came up with this conclusion.</p> <p>This is what else he said:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p> While German regulators at this point shouldn’t ban short-selling as U.S. authorities did in the 2008 financial crisis, the German central bank should make a statement in support of the lender, Mack said. Deutsche Bank shares jumped the most in almost seven years Wednesday, paring a decline that had exceeded 40 percent this year.</p> <p>&nbsp;</p> <p>“People overreact,” Mack said. “The bank’s name is Deutsche Bank. It’s the German bank. Politically, they will stand up, if they need a safety net, and give it to them.”</p> </blockquote> <p>Which was to be expected: after all DB had a gross notional derivative exposure of roughly $60 trillion as of 2014, several times greater than the GDP of Europe, and a net balance sheet which is a large portion of German GDP.</p> <p><a href=""><img src="" width="500" height="496" /></a></p> <p>&nbsp;</p> <p>This is also why last thing Germany, Europe, or the world's central bankers will allow, is DB to fail, and it has never been a question whether or not they will try to, but whether and how they can save it. And, if a political bailout is unfeasible in the current climate, whether instead of a bailout, would Deutsche Bank be the first major European bank to rely on Europe's new "bail in" regime to stuff depositors for any capital shortfalls.</p> <p>Still, without focusing on the specifics, a government (or ECB) backstop is precisely what the market is contemplating today as noted earlier, and as manifested in the stock which has soared the most in 5 years, just as Lehman did <a href="">in its turbulent final days</a>.</p> <p><a href=""><img src="" width="499" height="259" /></a></p> <p>&nbsp;</p> <p>Mack's full interview is below.</p> <p> <iframe src="" width="500" height="315" frameborder="0"></iframe></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="620" height="388" alt="" src="" /> </div> </div> </div> Deutsche Bank Fail Germany Lehman Morgan Stanley Wed, 10 Feb 2016 15:44:25 +0000 Tyler Durden 523278 at Oil Pumps On Unexpected Crude Inventory Draw, Dumps On Building Storage Concerns <p>Following <a href="">last night&#39;s across the board build in inventories from API</a>, DOE reported a <strong>surprising 750k drawdown (much less than the 3.2mm build expected</strong>). However, across the rest of the complex - inventories rose: <strong>Cushing +523 build (13th week in a row),</strong> Gasoline +1.26mm build, and Distillates +1.28mm build (first in 4 weeks). Having tumbled early on from Yellen&#39;s undovishness, <strong>crude spiked on the headline draw (back above $29) </strong>but is struggling to hold gains.</p> <p>&nbsp;</p> <p>From API:</p> <ul> <li><strong>Crude +2.4mm</strong></li> <li><strong>Cushing +715k</strong></li> <li><strong>Gasoline +3.1mm</strong></li> </ul> <p>From DoE:</p> <ul> <li><strong>Crude -754k</strong></li> <li><strong>Cushing +523k</strong></li> <li><strong>Gasoline +1.26mm</strong></li> <li><strong>Distillates +1.28mm</strong></li> </ul> <p><strong>The minor crude inventory draw is considerably outweighed by the build across products and storage concerns (echoing BP&#39;s earlier warnings)...</strong></p> <p><a href=""><strong><img alt="" src="" style="width: 600px; height: 492px;" /></strong></a></p> <p>&nbsp;</p> <p><strong>US Crude production dropped 0.3% week-over-week</strong> but remains well above 9mm bbl/day.</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 300px;" /></a></p> <p>&nbsp;</p> <p>Following Yellen&#39;s disappointment this morning, Crude had dumped, then it pumped on th eheadline DOE data only to wake up to the builds in products and Cushing...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 455px;" /></a></p> <p>&nbsp;</p> <p>&nbsp;</p> <p><em>Charts: Bloomberg</em></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="1250" height="947" alt="" src="" /> </div> </div> </div> Crude Distillates Wed, 10 Feb 2016 15:39:11 +0000 Tyler Durden 523277 at Deutsche Bank Spikes Most In 5 Years (Just Like Lehman Did) <p>Rumors of ECB monetization (which would be highly problematic in the new &quot;bail-in&quot; world) and old news of the emergency debt-buyback plan have sparked an epic ramp in Deutsche Bank&#39;s stock this morning (+11% - the most since Oct 2011). This extreme volatility is, however, eerily reminiscent of 2007/8 when headline hockey sparked pumps and dumps on a daily basis in Lehman stock... <em><strong>until it was all over.</strong></em></p> <p>&quot;Deutsche Bank is fixed&quot;?</p> <p><a href=""><img height="301" src="" width="600" /></a></p> <p>&nbsp;</p> <p>Or is it?</p> <p><a href=""><img height="313" src="" width="600" /></a></p> <p>&nbsp;</p> <p>Things are already fading...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 312px;" /></a></p> <p>&nbsp;</p> <p>We suspedct every bounce will be met by opportunistic selling as an inverted CDS curve has seldom if ever reverted back to life.</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="963" height="503" alt="" src="" /> </div> </div> </div> CDS Deutsche Bank fixed Lehman Monetization Volatility Wed, 10 Feb 2016 15:20:56 +0000 Tyler Durden 523276 at The End Is Nigh For Europe As Officials Mull 2 Year Schengen "Suspension" <p>Well, no one can say the writing wasn't on the wall.&nbsp;</p> <p>With Europe at a complete and total loss as to how to deal with the bloc's worst refugee crisis since World War II, countries have increasingly adopted their own, ad hoc "solutions" which include razor wire anti-migrant fences in Hungary and the suspension of Schengen in Austria, where the backlash against asylum seekers is growing more palpable by the day.&nbsp;</p> <p>An ill-fated quota system devised by Berlin and Brussels proved more divisive than it did helpful and the wave of alleged sexual assaults that swept through the region on New Year's Eve threatens to derail the settlement effort altogther.</p> <p>"We have until March, the summer maybe, for a European solution," one unnamed German official <a href="">told Retuers</a> last month.&nbsp;"<strong>Then Schengen goes down the drain</strong>."</p> <p>"There is a big risk that Germany closes," another official said, suggesting that Angela Merkel may eventually bow to the domestic political pressure and reverse the country's open-door policy. "From there, no Schengen ... <strong>There is a risk that February could start a countdown to the end</strong>."</p> <p> Well sure enough, reports now indicate that European officials are prepared to suspend Schengen for a period of 2 years. From Reuters:</p> <ul> <li><strong><span style="font-size: 1em; line-height: 1.3em;">EU ENVOYS AGREE TO MOVE STEP CLOSER TO SUSPENDING SCHENGEN FOR TWO YEARS - SOURCE</span></strong></li> </ul> <p>Like a stock halted limit down on the Shenzhen, there's a very good chance that once suspended, Schengen will never again be open for "trading".</p> <p><img src="" width="555" height="338" /></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="555" height="339" alt="" src="" /> </div> </div> </div> Germany Hungary Reuters Shenzhen Wed, 10 Feb 2016 15:04:57 +0000 Tyler Durden 523275 at JPM's Striking Forecast: ECB Could Cut Rates To -4.5%; BOJ To -3.45%; Fed To -1.3% <p>One week ago, in the aftermath of Japan joining the NIRP club, <a href="">we wondered how low Kuroda could cut rates if he was so inclined</a>. The answer was surprising: according to a Nomura analysis the lower bound was limited by gold storage costs. This is what the Japanese bank, whose profit was recently slammed by Japan's ultra low rates, said: </p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>"theoretically, negative interest rates' lower bound depends partly on the cost of holding cash in the form of physical currency. When people hold cash out of aversion to negative interest rates, they risk losses due to theft and the like. The cost of avoiding this risk could be a key determinant of negative interest rates' lower bound, but it is hard to directly quantify. As a proxy for the cost of holding physical currency, we estimated the cost of storing gold based on gold futures prices. This cost has averaged an annualized 2.4% over the past 20 years, though it has varied widely over this timeframe."</p> <p>&nbsp;</p> <p><a href=""><img src="" width="501" height="422" /></a></p> </blockquote> <p>Which, in conjunction with Kuroda's promises that "Japan will cut negative rates further if needed", raised flags: once the global race to debase accelerates, and every other NIRP bank joins in, will global rates be ultimately cut so low as to make a "gold standard" an implicit alternative to a world drowning in NIRP?</p> <p>According to a just released report by JPMorgan, the answer is even scarier. In the analysis published late on Tuesday by JPM's Malcolm Barr and Bruce Kasman, <strong>negative rates could go far lower than not only prevailing negative rates, but well below gold storage costs as well. </strong></p> <p>JPM justifies this by suggesting that the solution to a NIRP world where bank net interest margins are crushed by subzero rates, is a tiered system as already deployed by the Bank of Japan and in some places of Europe, whereby only a portion of reserves are subjected to negative rates. </p> <p>Which leads to the shocker: <strong>JPM estimates that if the ECB just focused on reserves equivalent to 2% of gross domestic product it could slice the rate it charges on bank deposits to -4.5%. </strong>Alternatively, if the ECB were to concentrate on 25% of reserves, <strong>it would be able to cut as low as -4.64%.&nbsp; </strong>That compares with minus 0.3% today and the minus 0.7% JPMorgan says it could reach by the middle of this <a href="">year as reported yesterday</a>.</p> <p>In Japan, JPM calculates that the BOJ could go as low as -3.45% while Sweden’s is likely -3.27%.</p> <p><strong>Finally, if and when the Fed joins the monetary twilight race, it could cut to -1.3% and the Bank of England to -2.69%</strong>.</p> <p>As <a href="">Bloomberg adds</a>, easing the fall is that the JPMorgan economists bet that banks are unlikely to be able to pass on the cost of the policy to borrowers, reducing potential repercussions. They also see limited pressure on bank profits or for a need to stash cash. On the other hand, DB has suggested that it is time to pass on NIRP to depositors in the most aggressive forms possible.</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>While Barr and Kasman still expect policy makers to tread carefully, such analysis may temper the recent fear of investors that after seven years of interest rates around zero and bumper bond-buying, central banks are now out of ammunition. Indeed, a fuller embrace of negative rates could “produce significant reductions in market rates,” said the economists. </p> <p>&nbsp;</p> <p>“It appears to us there is a lot of room for central banks to probe how low rates can go,” they said. “While there are substantial constraints on policymakers, we believe it would be a mistake to underestimate their capacity to act and innovate.”</p> </blockquote> <p>Here are the key observations by JPM:</p> <ul> <li>Sluggish growth and low inflation is building the case for further DM monetary policy stimulus. With term premia and forward rate expectations compressed, the benefits of additional QE and forward guidance is likely to be limited.</li> <li>The alternative of negative interest rate policy (NIRP) has been viewed as constrained as banks, corporates and households can increase holdings of zero-yielding physical currency when rates move negative.</li> <li>Innovations by central banks in Europe and Japan have enabled central banks to push policy rates well below zero. Using a tiered deposit scheme, deposit rates have fallen as low as -0.75% in Europe with no significant signs of a move into cash.</li> <li>Our analysis suggests that the use of these schemes could allow for considerably lower policy rates without undue pressure on bank profitability or creating a powerful incentive to move into cash.</li> <li>Calibrations based on Swiss experience suggest that with modest changes to the reserve regime, the policy rate in the Euro area could, <strong>in principle, go as low as -4.5%. </strong></li> <li>Estimated bounds for the US (-1.3%) and UK (-2.5%) are higher, reflecting their larger bank reserve to asset ratios. We believe this bound is not binding and that rates could fall further in both cases.</li> <li>To date, markets price only a small probability of sustained NIRP of -0.75% or lower in the G4. This suggests that a strong signal that policymakers are willing to actively use NIRP could produce significant reductions in market interest rates.</li> <li>The actual transmission of NIRP is likely to be muted as we expect household deposit rates to remain sticky around zero which will limit pass-through of NIRP through the retail banking sector.</li> <li>Central banks are also likely to move cautiously into NIRP as they are sensitive to the uncertain consequences of these policies on local markets. This suggests their response to weakness may prove slower than in the past.</li> <li>Having put in place a three tiered deposit system and facing a significant inflation undershoot, the Bank of Japan is expected to lower its deposit rate to -0.5% alongside additional QQE this year.</li> </ul> <p>Recall that JPM yesterday set the bogey on the one event that could prompt Yellen to go NIRP: a recession. Here is the latest take by JPMorgan on this:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>With IOER at 0.5% and the Fed maintaining concerns about US money markets, the US is not close to considering NIRP. <strong>However, if recession risks were realized, the need for substantial additional policy support would likely push the Fed towards NIRP.</strong></p> </blockquote> <p>In other words, once the Fed makes up its mind, all that will be needed is for economic "data" to turn even more severely southward thus giving Yelen the required political cover to join the final lap of the global race to debase. </p> <p>Finally, here is the summary table of where to look for the real negative lower bound.</p> <p><a href=""><img src="" width="600" height="477" /></a></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="817" height="649" alt="" src="" /> </div> </div> </div> Bank of England Bank of Japan Central Banks Gross Domestic Product Japan Monetary Policy Nomura Recession Wed, 10 Feb 2016 15:02:14 +0000 Tyler Durden 523264 at Goldman's Take: "Additional Hikes Remain FOMC Baseline" <p>This is probably not what the bulls wanted to hear. Moments ago Goldman released its take on Yellen's testimony set to begin momentarily, and contrary from a dovish take the bank which has spawned more central bankers in world history than any other, said that her prepared remarks "suggest additional hikes remain FOMC baseline "</p> <p><em><strong>Goldman's full take: </strong></em></p> <p><strong><span style="text-decoration: underline;">Fed Chair Yellen's Prepared Remarks Suggest Additional Hikes Remain FOMC Baseline </span></strong><em><strong><br /></strong></em></p> <p><strong>BOTTOM LINE: </strong>Chair Yellen’s prepared remarks to the House Financial Services Committee contained little new information on the monetary policy outlook, and were roughly in line with comments made by Vice Chair Fischer and New York Fed President Dudley over the past couple weeks. She continued to highlight the FOMC’s expectation for “gradual” increases in the federal funds rate. </p> <p><strong>MAIN POINTS:</strong></p> <p>1. Regarding recent turmoil in financial markets, Chair Yellen acknowledged that “Financial conditions in the United States have recently become less supportive of growth”, and that “if they prove persistent, could weigh on the outlook for economic activity and the labor market”. However, she also mentioned that “Declines in longer-term interest rates and oil prices provide some offset”.</p> <p>2. There was little new information regarding the monetary policy and economic outlooks. In terms of monetary policy, she continued to note that “The FOMC anticipates that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate.” Although Chair Yellen recognized that economic activity in the fourth quarter of last year “is reported to have slowed more sharply”, she also continued emphasizing that “labor market conditions have improved substantially” although “there is still room for further sustainable improvement”.</p> <p>3. Chair Yellen recognized the potential for negative spillovers from international developments, noting that “Foreign economic developments, in particular, pose risks to U.S. economic growth.” She also attributed recent market volatility to foreign developments, highlighting that “declines in the foreign exchange value of the renminbi have intensified uncertainty about China’s exchange rate policy and the prospects for its economy. This uncertainty led to increased volatility in global financial markets and, against the background of persistent weakness abroad, exacerbated concerns about the outlook for global growth”.</p> <p>4. Chair Yellen acknowledged the recent declines in measures of inflation expectations, but we did not detect a broader shift in Fed officials' assessment of these developments. Regarding survey based measures, she noted that they are “at the low end of their recent ranges; overall, however, they have been reasonably stable”. In terms of the recent declines in breakevens, Yellen noted that “market-based measures of inflation compensation have moved down to historically low levels.” However, she continued to emphasize her belief that most of these declines reflect “changes in risk and liquidity premiums over the past year and a half”.</p> <p></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="550" height="430" alt="" src="" /> </div> </div> </div> House Financial Services Committee Market Conditions Monetary Policy New York Fed Renminbi Testimony Volatility Wed, 10 Feb 2016 14:58:50 +0000 Tyler Durden 523274 at Janet Yellen's "Humphrey-Hawkins" Testimony: Economic Strains, Tightening Pains, & No Stock Gains - Live Feed <p>Fed Chair Yellen will be presenting her semi-annual monetary policy testimony - sometimes called the &quot;Humphrey-Hawkins&quot; testimony - today (House Financial Services Committee) and tomorrow (Senate Banking Committee). Her prepared remarks offered little new information over the January FOMC Statement but <strong>the Q&amp;A will likely be the most market-moving</strong> as politicians likely demand she<strong><em> &quot;get back to work&quot; </em></strong>for the good of the nation&#39;s shareholders.</p> <p>Live Feed (testimony is due to begin at 10ET)</p> <p><iframe allowfullscreen="" frameborder="0" height="315" src="" width="560"></iframe></p> <p>&nbsp;</p> <p>As we <a href="">detailed last night</a>, Citi&#39;s chief FX strategist Englander hinted at what would be Yellen&#39;s &quot;Draghi Moment&quot;:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><strong>The dovish surprise is if she explicitly removes March from the hiking calendar </strong>(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&nbsp;that the Fed has their back.</p> </blockquote> <p>This is not what she offered, and markets are disappointed. In fact, the most dovish Yellen went was to mention stocks and tightening financial conditions:</p> <p><a href=""><img src="" style="width: 600px; height: 340px;" /></a></p> <p>Yellen also admitted once more that the Fed&#39;s engaged in policy error:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>Financial conditions in the United States have recently become less supportive of growth, with declines in broad measures of equity prices, higher borrowing rates for riskier borrowers, and a further appreciation of the dollar... In the fourth quarter of last year, growth in the gross domestic product is reported to have slowed more sharply, to an annual rate of just 3/4 percent; again, growth was held back by weak net exports as well as by a negative contribution from inventory investment</p> </blockquote> <p>Earlier headlines:</p> <ul> <li>*YELLEN: FED EXPECTS ECONOMY TO WARRANT ONLY GRADUAL RATE RISES (everything is fine)</li> <li>*YELLEN: JOB, WAGE GAINS SHOULD SUPPORT INCOMES AND SPENDING (everything is awesome)</li> <li>*FED REPORT: LEVERAGE RISKS IN FINANCIAL SECTOR `REMAIN LOW&#39; (so don&#39;t worry about banks)</li> <li>*YELLEN: FINANCIAL STRAINS COULD WEIGH ON OUTLOOK IF PERSISTENT (so, there&#39;s chance)</li> </ul> <p>Headlines from the Q&amp;A to follow...</p> <p>&nbsp;</p> <p>*&nbsp; *&nbsp; *</p> <p>Full Prepared Remarks below...</p> <p style="margin: 12px auto 6px auto; font-family: Helvetica,Arial,Sans-serif; font-style: normal; font-variant: normal; font-weight: normal; font-size: 14px; line-height: normal; font-size-adjust: none; font-stretch: normal; display: block;"><a href="" style="text-decoration: underline;" title="View Yellen Testimony Feb 2016 on Scribd">Yellen Testimony Feb 2016</a></p> <p><iframe frameborder="0" height="600" scrolling="no" src=";view_mode=scroll&amp;show_recommendations=true" width="100%"></iframe></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="620" height="465" alt="" src="" /> </div> </div> </div> Front Running Gross Domestic Product headlines House Financial Services Committee Janet Yellen Monetary Policy Testimony Wed, 10 Feb 2016 14:56:15 +0000 Tyler Durden 523273 at