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Dollar Tumbles After Fed Whiffs Again; More Cracks Appear In Chinese Stock Bubble
All those saying the Fed will never be able to raise rate are looking particularly smug this morning, because if the market needed a green light that despite all the constant posturing, pomp and rhetoric, the US economy is simply (never) ready for a rate hike, it got it late last night when Goldman pushed back its forecast for the first Fed rate hike from September to December 2015 saying that "in large part this reflects the fact that seven FOMC participants are now projecting zero or one rate hike this year, a group that we believe includes Fed Chair Janet Yellen. We had viewed a clear signal for a September hike at the June meeting as close to a necessary condition for the FOMC to actually hike in September, but the committee did not lay that groundwork today."
This happened even as Citi did the reverse, and pulled forward its first rate hike estimate from December to September, citing "compelling" evidence that moderate growth may be sufficient to close output gap in medium term, because potential growth has slowed significantly since 2008. Citi is also concerned that buildup of financial imbalances may manifest in disruptive rate volatility, notwithstanding Fed communications to the contrary.
Judging by the reaction in the US Dollar (which is crashing this morning) it is Goldman 1:Citi 0.
As for June, allow us to sumamrize: US economy is so strong the Fed once again contemplated a "barely noticeable" 25 bps hike... and whiffed.
December? We give Goldman 3 months, or some time in September, when the Fed realizes the US economy will be covered in 6-12 inches of GDP crushing snow deep in the winter and as a result the rate hike will be delayed once again to some time in 2016.... And so on. And so on. Because, well, here is a chart from 2010 from a CNN article titled "Economists: Fed won't raise rates until 2012" which needs no comment.
End result of this latest risk repricing is that the USD tumbled overnight, as did bond yields for obvious reasons... as did China, where the market plunged another 3.7% overnight on increasing chatter that the locals are realizing that the local stock bubble is, well, a bubble and nobody wants to be the last one in.
In central bank news Norway cuts rate to record low 1.00% as expected, while the SNB maintains deposit rate at -0.75%. So yes: Europe continues to ease further into NIRP territory and/or monetize debt, and people are talking about the Fed hiking rates.
A closer look at stocks, shows the European Eurostoxx50 -0.6% remaining on the back foot, as market participants continued to grapple with Greek debt saga, while EUR strength stemming from broad-based USD weakness in reaction to dovish FOMC weighed on exporters. Investment banks Citigroup brought forward their expectation for Fed rate hike from December to September, while Goldman Sachs hold converging views and pushed back the date of its first projected Fed rate hike from September to December. At the same time, supply from Spain and France (both auctioned at higher than prev. yield levels) failed to weigh on Bunds, which remained bid since the open, while Greek bond yields continued to climb and the benchmark Greek equity index fell to its lowest level since Sep’12.
Heading into the North American crossover, sources out of Greek press reported that the EU and ECB are drafting a possible debt relief statement on regards to Greece. (eKathimerini)
ECB are to increase their ELA ceiling to Greek institutions by EUR 1.1bln to EUR 84.1bln while leaving their haircuts on Greek debt unchanged, according to sources. (BBG) Of note, this decision comes as part of the ECB's weekly review of the ELA limit for Greek banks as bailout talks continue.
Greek Finance Minister Varoufakis said it is unlikely that an agreement can be made at today's Eurogroup meeting as it requires
approval at a higher level of government. However, did later state that Greece seeks to remain in the EU (RTRS)
ECB's Weidmann said that the ECB will not be able to provide further financing to Greece if discussions fail. Elsewhere, German
finance minister Schaeuble stated that aid can only be provided if Greece adheres to its obligations adding that the IMF must continue Greek aid. (RTRS/Bild)
GBP/USD rallied to its highest level since Nov’14 and UK TWI rose to 7y high, supported by a weaker USD, the release of better than expected UK retail sales and also comments by BoE's Forbes (soft hawk) who said she foresees an increase in interest rates in the “not too distant future” and that the central bank could lift rates before UK inflation reaches its 2% target. Commodity linked currencies benefited from the broad based commodity rally, with AUD/USD which moved above its 100DMA and the 50DMA levels, while USD/CAD fell to its lowest level since mid-May. Elsewhere, NZD slumped after NZ Q1 GDP fell to a 2-year low (Q/Q 0.2% vs. Exp. 0.6%, Prev. 0.8%, Rev. 0.7%) which prompted many to bring forward RBNZ rate cut expectations, with a July cut all but priced according to OIS.
Despite the risk averse sentiment, commodity complex posted broad based gains, with gold trading above the 50DMA and in close proximity to the 100DMA line, with the key psychological USD 1,200 level to follow. Whilst WTI and Brent crude futures remain bid and sit comfortably above the USD 60.00 and USD 64.00 handle respectively.
In summary: European shares pare losses, remain lower with the tech and autos sectors underperforming and basic resources, utilities outperforming. Merkel says a deal with Greece is still possible provided the Greek government follows through on the economic-reform pledges made to creditors. ECB provides EU74b in TLTRO, estimated range EU20b-EU160b. U.K. retail sales rise, analysts had expected a decline. Fed kept its forecast for rates to begin rising this year and reduced its projection for where they’ll be by the end of 2016. Norway cuts rate to record low, SNB maintains deposit rate at -0.75%. The Swiss and Swedish markets are the worst-performing larger bourses, the U.K. the best. The euro is stronger against the dollar. Japanese 10yr bond yields fall; German yields decline. Commodities gain, with natural gas, soybeans underperforming and Brent crude outperforming. U.S. jobless claims, continuing claims, Bloomberg consumer comfort, CPI, Bloomberg economic expectations, Philadelphia Fed index, leading index, current account balance due later.
Market Wrap
- S&P 500 futures up 0.2% to 2094
- Stoxx 600 down 0.7% to 381.1
- US 10Yr yield down 4bps to 2.28%
- German 10Yr yield down 5bps to 0.76%
- MSCI Asia Pacific up 0.4% to 146.8
- Gold spot up 1% to $1197.9/oz
- Eurostoxx 50 -0.6%, FTSE 100 -0.3%, CAC 40 -0.7%, DAX -0.7%, IBEX -0.6%, FTSEMIB -0.4%, SMI -1.1%
- Asian stocks rise with the Sensex outperforming and the Shanghai Composite underperforming.
- MSCI Asia Pacific up 0.4% to 146.8
- Nikkei 225 down 1.1%, Hang Seng down 0.2%, Kospi up 0.3%, Shanghai Composite down 3.7%, ASX down 1.3%, Sensex up 1.1%
- 9 out of 10 sectors rise with health care, energy outperforming and telcos, financials underperforming
- Euro up 0.52% to $1.1396
- Dollar Index down 0.58% to 93.75
- Italian 10Yr yield down 3bps to 2.28%
- Spanish 10Yr yield down 6bps to 2.27%
- French 10Yr yield down 7bps to 1.17%
- S&P GSCI Index up 0.9% to 440.5
- Brent Futures up 1.5% to $64.9/bbl, WTI Futures up 1.4% to $60.7/bbl
- LME 3m Copper up 0.8% to $5789.5/MT
- LME 3m Nickel up 0.9% to $12860/MT
- Wheat futures up 0.3% to 498.5 USd/bu
Bulletin Headline Summary From Bloomberg and RanSquawk
- FOMC post-mortem takes centre stage, with USD weakness supporting EUR and GBP, as well as the broader commodity complex.
- Greek debt crisis uncertainty and firmer EUR weighed on exporters and sees EU stocks trade lower again, with the benchmark index in Greece trading at its lowest level since Sep’12.
- Going forward, market participants will get to digest the release of the latest US CPI, weekly jobs, Philadelphia Fed survey and the release of the latest EIA natural gas storage change report.
- Treasuries gain, with shorter maturities extending rally seen yesterday after Fed cut longer-term rate forecasts and as Greece remains at an impasse.
- Fed officials’ median forecast for fed funds target fell to to 1.625% for end-2016 from 1.875% March; it fell to 2.875% for end-2017 from 3.125% in March
- Merkel, in a speech to lawmakers in Berlin, said a deal with Greece is still possible provided the Greek government follows through on the economic-reform pledges made to creditors
- EC, ECB are working on the draft of a possible statement on debt relief to be used if Greece, creditors reach an agreement, Kathimerini newspaper reports, without saying how it got the information
- Greek banks, which received two capital infusions in the past two years, may need a third one as a recession drives up losses from bad loans
- U.K. retail sales rose 0.2% in May, more than expected, led by sales of food and gasoline, as spending on clothing declined
- Hong Kong lawmakers rejected a China-backed plan for the city’s first leadership elections, a result that leaves both Chief Executive Leung Chun-ying and pro-democracy campaigners with little to show after months of protests
- Sovereign 10Y bond yields lower. Asian, European stocks slide, U.S. equity-index futures gain. Crude oil, copper, gold higher
US Event Calendar
- 8:30am: CPI, May, est. 0.5% (prior 0.1%)
- CPI Ex Food and Energy, May, est. 0.2% (prior 0.3%)
- CPI y/y, May, est. 0.0% (prior -0.2%)
- CPI Ex Food and Energy y/y, May, est. 1.8% (prior
1.8%) - CPI Index NSA, May, 237.965 (prior 236.599)
- CPI Core Index, May (prior 241.409)
- Real Avg Weekly Earnings y/y, May (prior 2.3%)
- 8:30am: Initial Jobless Claims, June 13, est 275k (prior 279k)
- Continuing Claims, June 6, est 2.2m (prior 2.265m)
- 9:45am: Bloomberg Consumer Comfort, June 14
- Bloomberg Economic Expectations, June (prior 44)
- 10:00am: Philadelphia Fed Business Outlook, June, est. 8 (prior 6.7)
- 10:00am: Leading Index, May, est. 0.4% (prior 0.7%)
DB's Jim Reid completes the overnight recap
So all-in-all it was a fairly balanced set of minutes released by the FOMC and post-meeting statement from Yellen last night, one which keeps a 2015 and September lift-off in play, but also one which emphasized the need for any move to be gradual and clearly still data dependent. It was the dovish undertone in the dot plots which got most of the market talking however after we saw the 2016 and 2017 dot plot median forecasts revised down and a greater proportion of members signaling for just one hike this year, perhaps meaning that the likelihood of a move in September has slipped slightly. Rates markets certainly reflected a more dovish tone. Indeed having opened at 2.310%, 10y Treasury yields rose steadily over the course of the day, eventually reaching an intraday high of 2.399% in the minutes before the FOMC. Yields immediately dropped following the release however with a 9bps tightening to close more or less unchanged at 2.317% (+0.7bps). Yields have in fact declined a further 4.8bps this morning and are currently hovering around 2.268%. It was a similar story in Fed Funds contracts yesterday where yields on the Dec15, 16 and 17 contracts fell 3.0bps, 5.0bps and 5.5bps respectively.
In terms of the dot plots first of all, as largely expected the median dot for 2015 stayed at 0.625% or consistent with two rate hikes this year. It was the dispersion around this median however which was interesting. In the March meeting, there were 7 dots at 0.625%, 7 dots above this and 3 dots below. The latest forecasts now show 5 dots at 0.625%, with 5 dots above this and 7 dots below (of the 7 dots below, 5 are forecasting one hike and 2 are forecasting no move at all). There were plenty of suggestions that one of the dots representing just a single hike belonged to Fed Chair Yellen, although in reality it’s not possible to tell. DB’s Peter Hooper noted that the count is potentially closer that it appears now because most if not all of the five favouring one hike are likely to be voting members. Given this uncertainty, Peter thinks that this makes the dot charts considerably less clear as a guide to Committee expectations about the timing of liftoff than it was three months ago. In doing so, it also gives the Chair more flexibility as she now has an easier option to guide the Committee towards September or December depending on how the data are coming in over the month just ahead. Meanwhile, the median dots for 2016 and 2017 were revised down 25bps each to 1.625% and 2.875%, but interestingly the long-run forecast was unchanged at 3.75%.
Away from the dot plots and as largely expected the statement on the whole painted a more upbeat picture of the economy relative to April’s meeting. Yellen acknowledged that the disappointing economic performance in Q1 was largely transitory, as well as noting improvements in the pace of job gains and the labour market. Yellen also said that any tightening would be ‘gradual’ and that the Fed would not follow a ‘mechanical’ formula. There was also some acknowledgement of positive signs for inflation. When questioned on Greece, Yellen said that the difficulties there do have the potential to disrupt global financial markets and that these could spill over negatively into the US economy. As expected, 2015 growth forecasts were lowered to 1.8% to 2.0% from 2.3% to 2.7% previously, while there was a small tweak upwards in unemployment forecasts for the year. Headline and core PCE inflation estimates were unchanged for this year with some minor tweaks to 2016 and 2017.
With the move lower in Treasury yields, the Dollar sold off in parallel as the Dollar index ended -0.75%. US equities traded with little obvious direction for the most part, paring some modest losses leading up to the FOMC with the S&P 500 (+0.20%) eventually finishing slightly up on the day. Gold (+0.29%) also gained following the release, while oil markets ended more mixed with WTI (-0.08%) declining slightly and Brent (+0.27%) a tad higher.
Looking at the early reaction in Asia this morning, bond markets have largely followed the lead from Treasuries, where 10y yields have fallen led by Australia (-14.2bps) while Singapore (-2.6bps), Japan (-3.3bps) and South Korea (-2.6bps) are also tighter. Asia currencies are having a stronger morning too. The Malaysian Ringgit (+0.92%), Korean Won (+0.94%) and Philippines Peso (+0.27%) all up against the Dollar. Meanwhile a report showing that China property prices for May were deflating at a slower rate (-5.7% yoy vs. -6.1% in April) doesn’t appear to have helped give a lift to equity markets in the region where the Shanghai Comp (-0.18%) and CSI 300 (-0.48%) are both currently down. It’s a similar story elsewhere too with the Nikkei (-0.85%), Hang Seng (-0.06%), and ASX (-1.49%) are all lower this morning.
Back to China, yesterday our Chief China Economist Zhiwei Zhang noted that the State Council had held a meeting and decided to launch more investment projects to boost growth. The measures were said to include housing renovation plans, investments in rural power, food storage and also the speeding up of investments in water management and railways. Zhiwei believes that this is more evidence of significant fiscal easing and reinforces his view that growth will pick up slightly to 7.0% in Q3 and 7.2% in Q4.
Back to yesterday, it was something of a day of two halves as pre-FOMC Greece headlines once again dictated most of the price action in Europe. Indeed it was a weaker day in equity markets as the Stoxx 600 (-0.45%), DAX (-0.60%) and CAC (-1.02%) all declined, while Greek equities fell 3.15%, the fourth consecutive daily decline with the index now down over 17% in that time. It was a bit more mixed in bond markets as 10y Bunds eventually closed 1.1bps wider at 0.806% having traded in a tight range for most of the day, while it was a better day for the periphery as Spain (-2.5bps), Italy (-1.6bps) and Portugal (-4.8bps) yields all fell. The same couldn’t be said for Greece however where 10y yields ended 19bps wider at 13.134%. European credit markets were under pressure also. Crossover ended 7.5bps wider while Main hit fresh 8-month wides after another +2.3bps move yesterday. In fact just looking at the cash spreads now for Euro IG, as of Tuesday’s close cash spreads are now at 14-month wides having moved steadily wider since mid-May. Data flow in Europe yesterday was confined to Euro area CPI where the final May print for the headline (+0.3% yoy) and core (+0.9% yoy) were unchanged.
It was another day of largely negative headlines out of Greece leading into today’s Eurogroup where expectations appear to be pretty low for any hope of a breakthrough. Yesterday we heard Greece PM Tsipras again heighten tensions after saying that ‘if we don’t have an honorable compromise and an economically viable solution, we will take the responsibility to say a big no to the continuation of a catastrophic policy’. Meanwhile, Bank of Greece Governor Stounaras fired a stern warning after saying that ‘failure to reach an agreement would mark the beginning of a painful course that would lead initially to a Greek default and ultimately to the country’s exit from the Euro area’. This came as the ECB yesterday raised the ceiling on the ELA facility, while there were no announced changes to the discounts on collateral pledged.
Over on the European side, German Finance Minister Schaeuble told parliament that the German government is preparing for the worst. In expectation of no breakthrough tomorrow, attention will turn to a likely EU Leaders Emergency Summit meeting this weekend. Given Tsipras’s repeated rhetoric that any agreement must be struck at the highest possible political level, the meeting could be seen as the best possible chance.
Wrapping up, there was also Central Bank attention in the UK yesterday following the release of the BoE’s minutes. They indicated a somewhat more hawkish tone with the minutes noting that factors constraining price growth ‘were likely to dissipate fairly shortly’ and may well ‘strengthen’ by year-end. The BoE’s Forbes added to this saying that she sees UK inflation rebounding ‘fairly quickly’ while yesterday’s employment data was certainly supportive, in particular the rise in average weekly earnings to +2.7% yoy in the three months to April from +2.3% previously – the highest since 2011. 10y Gilts ended +7.4bps higher in yield yesterday and back above 2% at 2.060%. The Pound closed 1.2% higher versus the Dollar.
Looking at the day ahead now, the bulk of the attention will likely remain on Greece with the Eurogroup meeting due while data wise we get UK retail sales for May and the Norges Bank rate decision where consensus is for a cut in the deposit rate. It’s set to be another busy day across the pond this afternoon with US CPI due for May, while initial jobless claims, average weekly earnings, the Conference Board leading index and the Philadelphia Fed business outlook round off a busy day ahead.
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It's all Bullshit!!! Greece will get newly printed money out of thin air as a loan to pay back the interest on the money that they previously borrowed. All of this freshly printed money is backed by nothing. Our children, grandkids, and great grand kids will be stuck with this debt and look back at this generation as a real selfish piece of work.
Had you considered that the plan is for Greece to default now ?
TPTB have had four years to prepare for it, and will greatly profit from the resultant crash,
at a time of their choosing.
All those saying the Fed will never be able to raise rate are looking particularly smug this morning
Not saying a damn word....
Except maybe double dog dare ya bitch.
The FED has lost credibility.
This is the BEST NEWS as it will further erode the Faith, Trust and Confidence in the Dearh and Debt Paradigm.
Looking forward to September...
but not for the .01% whom still are reaping the windfall.
Paper gains turn into paper losses when the Derivatives Market collapses due to Douchebunk's really bad Oil Derivative bets.
They have much more to lose and they will lose it all.
Looking forward to September.
Greece is the sideshow, the distraction, and there is NO WAY OUT.
who is to say they(cb ptb) can't create offsetting betts to stabilize the racket, backed my moar fiat created leveraged markers. way i see it they are in control til they arn't and that is where we agree...
is douche lehman?
"All those saying the Fed will never be able to raise rate are looking particularly smug this morning."
Not me; I'm always looking smug...
[PS: Cash, Bonds, Gold...]
Oh, and: Never... gonna... Happen...
say, Tom u got a link for the oil connection? I've read all the whispers about Douche banks derivative mess but not what kind of derivatives
But present Banksters get their bad loans paid off so it is all good.....
Create 0 s and 1s ind insert into system.
No financial instrument backing needed.
You know some smartie is all over it now.
(at least Bitcoin has flashy infrastructure websites and secure pocketbooks)
(snikker)
Goldman puts back rate hike Sept.2015 to Dec.2015. We all know that it's their prerogative.
If they raise rates we are off on the inflation rocker which wil cause further rounds on rate increases.
Reserves, reserves, reserves and negative rates over much of the world
"ECB's Weidmann said that the ECB will not be able to provide further financing to Greece if discussions fail. Elsewhere, German
finance minister Schaeuble stated that aid can only be provided if Greece adheres to its obligations adding that the IMF must continue Greek aid". (RTRS/Bild)
~ The Greek leader Odius Maximus walks into the room.... Is that you I smell, or did you step into some more IMF dogshit!
stocktivity, stuck with debt, based on what? fiat which is debt on debt? odious debt is correct both in greece and in most of western world. the implications of greece using this weapon "odious debt" will sweep across the years- the MSm will of course deflect the public eye..the elite want no one to understand all debt in fiat systems is odious..hard to get your mind around the fact there is no there, there.
are we at the intersection said the blind fed res chair to her def seeing eye dog?
It doesn't matter whether the Stalinists raise rates or not; gold is simply incredibly underpriced these days. This will change the next few years. And banksers and politicians will be taken out. Or take out themselves.
Russia calls investigation into whether US moon landings happenedThe increasingly tense relationship between the United States and Russia might be about to face a new challenge: a Russian investigation into American moon landings.
In an op-ed published by Russian newspaper Izvestia, Vladimir Markin, a spokesman for the government's official Investigative Committee, argued that such an investigation could reveal new insights into the historical space journeys.
According to a translation by the Moscow Times, Markin would support an inquiry into the disappearance of original footage from the first moon landing in 1969 and the whereabouts of lunar rock, which was brought back to Earth during several missions.
“We are not contending that they did not fly [to the moon], and simply made a film about it. But all of these scientific — or perhaps cultural — artifacts are part of the legacy of humanity, and their disappearance without a trace is our common loss. An investigation will reveal what happened,” Markin wrote, according to the Moscow Times translation.
The op-ed is unlikely to raise worries among Nasa officials. In 2009, Nasa itself admitted that it had erased the original video recordings of the first moon landing among 200,000 other tapes in order to save money, according to Reuters
http://www.independent.co.uk/news/world/europe/russia-calls-investigatio...
Wagging the Moondoggie, Part I
October 1, 2009
by David McGowan
http://davesweb.cnchost.com/Apollo1.html
The fed will never give up their most potent weapon.
Gumslapping
But... they might...they could.
After all, they are considering, looking at the data, ready to act, keeping a close eye on things, discussing, planning, watching carefully, not sitting still, paying close attention, sharing thoughts, contemplating, seeing improvement, expecting, anticipating, revisiting, not falling behind the eight ball, taking steps, moving towards, preparing etc
So it must be coming, yes?
If the FED raises interest rates it will be a meltdown.
http://plata.com.mx/mplata/articulos/articlesFilt.asp?fiidarticulo=265
Keep in mind that rate hike would also damage military industry. It's also kinda a hot topic these days.
"So all-in-all it was a fairly balanced set of minutes released by the FOMC and post-meeting statement from Yellen last night."
Bollocks. They're painted into a corner and she knows it.
DavidC
So bonds are surging in value while the dollar tanks and inflation rages away.
Sounds perfectly logical to me...
Too late now for a face-saving token rate hike. The wheels come off in Sep-Oct.