This page has been archived and commenting is disabled.
BofA Warns "Risk Of Selloff" After September's FOMC
While BofAML's Michael Hanson expects Yellen’s overall tone to remain dovish, market perception will be key. The combination of changes to the forward guidance language, upward drift of the dots, and any comments seen as potentially hawkish, could lead to a selloff...
Via BofAML,
Risk of a hawkish read
The September FOMC meeting may be the most anticipated in nearly a year. We expect no fundamental changes in Fed policy, despite revising the statement to clarify policy data dependence and some upward drift in the dots. The FOMC should taper by another $10bn as well. Fed Chair Janet Yellen’s press conference will set the tone for the market reaction. While we anticipate she will continue to support a patient and gradual normalization process, the risk is that markets may sell off on the perception of a less dovish Fed.
Textual analysis
The FOMC statement has been the focus of much market speculation recently. The “significant underutilization of labor resources” phrase should be retained, in our view, given the soft August jobs report and only slight improvement on net since the July meeting. Conversely the “considerable time” language is likely to revised, in our view, as several Fed officials worry it sounds too much like calendar guidance. To reinforce the data dependent nature of policy, the FOMC could suggest that they will maintain the current 0 to ¼ percent funds rate target range until there has been “considerable progress toward the dual mandate objectives.” We also expect the statement to note that these changes do not reflect a shift in policy preferences, and for Yellen to reiterate that point at the press conference. Still, the risk is that markets see these revisions as a hawkish move in the timing of liftoff.
Drifting dots
The Summary of Economic Projections (SEP) should reveal a slight revision lower for the unemployment rate forecasts for this year and next. We expect a modest upward drift to the 2015 and 2016 dots as well, as some centrist Fed officials have recently shifted to “midyear” from “second half” for their expected start to the tightening cycle. (We just updated our own forecast for the Fed’s first rate hike to June 2015 from September.) The 2017 forecasts will be included for the first time; we look for the median dot to be between 3.25 and 3.50%, with the median ex-hawks at that lower bound. The median longer-run policy rate projection should remain at 3.75%.
Recall that Governor Lael Brainard participates in the SEP for the first time at this meeting.
Market risk also drifts up
Markets are priced well below just about any reasonable variation on the median dot, and a recent San Francisco Fed paper noted that the market seems both too dovish and too certain about Fed policy as well.
Drifting dots thus represent a significant risk for a selloff in the markets. While we expect Yellen to de-emphasize the dots at the press conference - they are not a consensus policy tool, after all - markets may have difficulty looking past them this time.
* * *
Meet the press
Finally, Chair Yellen will likely continue her more balanced discussion of the labor market outlook, yet still emphasize a patient approach to policy normalization. She also may update the discussion around the revised Exit Strategy Principles, but a formal restatement may not appear until later this year. While we expect Yellen’s overall tone to remain dovish, market perception will be key. The combination of changes to the forward guidance language, upward drift of the dots, and any comments seen as potentially hawkish, could lead to a selloff, particularly at the short end of the yield curve.
- 9748 reads
- Printer-friendly version
- Send to friend
- advertisements -




No way they come out hawkish.
The Fed isn't driving this. The BRICS are moving in another direction and the FED is posturing that it has recovered from its delusion.
This is about the USD and gold.
No, they came out SQAWKISH...
This is really scary:
http://www.portfolio-adviser.com/news/macro-news/gold-predictive-powers-to-return-ubs
A hint of the netherworld and reading entrails to know the future.
And remember, physical demand for this real asset isn't really important.
"The recent strength of the US dollar as seen through the DXY and an increasing focus on Fed normalisation suggests that gold's direction is going to be far more determined by macro factors up ahead than it has been all year, and increasingly so versus other gold price influencing variables such as physical demand."
Hahahaha! They're STILL ain't gett'in me gold! 'cause it still be sitt'in on the bottom of the lake... 'member that terrible boat'in accident?!?...
Aye!
these be treachourous waters for the likes of swashbucklin central banker kuntZ!
Garr!
hawkish = 1% fed funds rate 15 months from now?
that might invert the yield curve.
i agree with himaroid. any lift in rates sends the USSA Titanic into a tailspin to the bottom of the ocean. its ZIRP4EVA or "harsh winter weather" becomes "harsh year-long weather"
raise your hand if you think Q1's GDP debacle was 'weather' more than it was 'rate spike' so i can slap some sense into you.
People will soon become aware the the fed follows, does not lead.
Leads from behind
There is no such think as a "growth recession." You have either one or the other. We're in a mid cycle correction...long treasuries, short BofA.
Tbonds may sell of a little more. Fed comes out dovish to prevent further equity sell off. If they come out hawkish and the bond market does not sell off, they will be revealed. Fed has no choice. Do not let them have your treasuries.
the recession dead ahead is a lot closer than the one in the rear view mirror
Yeah right, like there is going to be a sell off just before the erections.
That's what she said?
where did i hear that before? oh right, just before the 2008 election ...
wake me when there actually IS A SPOON
Exactly. Always the when.
Fed hawkish statement = "someday...not any time soon...we maybe kinda just might raise the FFR by .0000000000001%"
Our economy has been torn apart.......whereby the only economic indicator is an idiot from the FED being dovish or hawkish. God help us!!
... and meanwhile the QE in one form or another will continue unabated via currency swaps with whatever central bank entity. How else can you possibly explain someone in Belgium of all places buying massive amounts of Treasuries recently? If this were fully disclosed by the Fed I fear the dollar would plummet in seconds. Then what?
My spidey sense tells me Taper Tantrum Part 2 is right around the corner...which will lead to further untapering.
no man knoweth the hour of the great untapering. yellen knows, but not sure s/he/it is human.
DXY is already telling Yellen we need an untaper. historical precedent says we get 1 before year end.
no choice but to taper
liquidity issues in the bond market driving the bus
Just great, now zerohedge is the Hilsenrath of BofA...sigh
relax, just increase the Thorazine drip. It's Friday!
If it is just the same with you, I'll increase the wine drip.
Sauvignon Blanc, merci.
From a winery less than one mile from my homestead.
Fuck BofA and arrest the FOMC financial terrorists.
Even if Mr. Yellen is taken as hawkish this shit is priced in... At least in the FX markets. Look at the aud vs everything carry unwind this week... Look at rampathon in usd/jpy.
Where are traders going to run if the munchkin makes equities sell off? Cash/ PM's possibly/ Bonds. If she's dovish, traders will also run back into bonds. The Fed. has real credibility issues right now, and they're backed into a corner.
Maybe she will do something stupid like raising rates, or give a hawkish speech, thinking traders will buy bonds on a selloff.
Another worthless BoA prediction. Nothing more than a guess based on assumptions. Anyone for any flimsy reason could predict a melt-up or melt-down. Not actionable.
OK, so, should I take all my assets to B of A and hand 'em over to the investment guru down there?
BofA just wants to manipulate the Fed with scaremongering. They will be happy to suck up more taxpayer funded corporate welfare.
<--- The Ponzi Munchkin will stick to the dove script.
<--- The Ponzi Munchkin will make another '6 months' gaff.
Where do I go when I want honest accounting and truth? Why Bank of America, of course. That paragon of business acumen and foresight.
Fuck you Bank of America, Wells Fargo, Citigroup, JP Morgan and Nationstar Mortgage, LLC. Bullies, bluff, lies and general incompetence, banksters and their willing stooges. That was just an update...
Now that the big boys no longer get a 30 ms advance feed, they can tell us what they plan to do in advance. How magnanimous of them, let's all trade along with them ...