This page has been archived and commenting is disabled.
Futures Surge On Renewed "Hopes" Of Fed Rate Hike, Sliding Yen
Just one week after the Fed overwhelmingly voted to keep rates unchanged, in a move that was seen as a painfully dovish admission that neither the global nor the US economy are growing at anything close to a satisfactory pace, last night, in a very macabre speech which ended prematurely when a clearly unwell Yellen called it a day, the Fed Chair tried to once again lay out the case for a rate hike before year end.
The market, which clearly ignored the glaring contradictions in Yellen's speech which said that overseas events should not affect the Fed's policy path just a week after the Fed statement admitted it is "monitoring developments abroad", and also ignored Yellen explicit hint that NIRP is coming (only the size is unclear), and focused on the one thing it wanted to hear: a call to buy the all-critical USDJPY carry pair - because more dollar strength apparently is what the revenue and earnings recessioning S&P500 needs - which after trading around 120 in the past few days, had a 100 pip breakout overnight, hitting 121 just around 5am, in the process pushing US equity futures some 25 points higher at last check.
So is that it? Has the confused market, after a 7-year liquidity addiction driven by an overly generous liquidity dealing Fed, decided to go cold turkey and accept that rate hikes are positive for risk? Hardly. But it will take the confused market the usual period of time before it realizes that Yellen's deathwish on Emerging Market currencies is about to unleash havoc on global risk flows as we showed earlier this week.
And if rate hikes are bullish, then why flirt with 25 bps - why not just do 2.5% or better yet, 5%, and send the E-mini limit up.
Joking aside, another catalyst for the overnight surge in the S&P500 carry trade, the USDJPY, was Japan's previously reported relapse into deflation for the first time since 2013, a clear indication that Abenomics is no longer working so, drumroll, more Abenomics is needed (i.e., more QE)!
The CPI announcement was followed by a meeting between Kuroda and Abe earlier this morning. Some, like the Nikkei, suggested the meeting was to discuss future monetary policy and further easing, something we have said is in the cards now that the ECB is off the table indefinitely and leaves the BOJ as the only source of incremental "outside money" flows into risk... Even if such a QE boost means the BOJ monetizes outstanding Treasurys that much faster and is forced to taper QE prematurely. That doesn't matter: what matters is preserving the status quo in a regime in which central bank credibility is suddenly crashing every single day.
But back to markets, and where the aforementioned USDJPY did not take place until just before the European open, Asian equity markets traded mostly lower following Fed Chair Yellen's less dovish than expected comments where she said she expects rate lift-off this year. Shanghai Comp. (-1.6%) led the declines on continuation of Chinese growth concerns, while the ASX 200 (-0.6%) conformed to the negative tone led lower by energy and large banking names.
Japan's Nikkei 225 (+1.8%) fluctuated between gains and losses as strength in health care was offset by weakness in tech names, while Sharp (-8%) fell to record lows after it confirmed that it will miss its H1 profit forecast. JGBs initially tracked the losses in T notes post-Yellen comments but the better than prior enhanced liquidity auction added support.
But if Asia limped along, European equity markets positive blasted off (Euro Stoxx: +3.0%) heading into the North American crossover, bolstered not only by the global Yen carry but also by stock specific news as German automakers see a rebound from recent losses after German press reported that there has been no suggestion of BMW exhaust manipulation despite contradictory reports yesterday. However it is worth noting that Euro Stoxx remains lower by around 1.5% for the week on the back of the ongoing emissions scandal.
In FX, the final session of the week starts with USD dominating proceedings, with the greenback bolstered by comments last night from Fed's Yellen (USD-index: +0.3%). Yellen's comments yesterday were seen as less dovish than expected, whereby she said she expects rate lift-off this year - of course the Fed has been saying that for the past year. The real question is not if the Fed will hike rates in 2015 - it is when in 2016 Goldman will give the greenlight for a 2016 hike, if ever.
For now, however, USD has continued to strengthen throughout the morning to weigh on major pairs, with EUR/USD breaking below its 50 and 100 DMAs. USD strength also saw downside in fixed income markets, with T-notes heading into the North American crossover lower by round 11 ticks and Bunds Dec'15 futures trading below 155.50.
On today's US event calendar we will get the third and final reading for Q2 GDP where the consensus expectation is for no change to the 3.7% print. We’ll also get the flash services and composite PMI readings along with the final September print for University of Michigan consumer sentiment. Fedspeak wise it’s the turn of Bullard and George today. Hopefully they will be better "hydrated" than Yellen.
Bulletin Headline Summary from Bloomberg and RanSquawk
- Less-dovish than expected comments from Fed's Yellen have supported USD and weighed on fixed income products
- Equity markets have seen notable strength, bolstered by a rebound in automakers
- Today's highlights include the tertiary reading of Q2 GDP and the final reading of University of Michigan sentiment, while comments are expected from Fed's George and Bullard and ECB's Weidmann
- Treasuries decline, headed for modest loss on the week, after Fed’s Yellen said in speech last night that she is ready to raise rates this year.
- Yellen also said she intends to let the labor market run hot for a time to heal the recession’s lingering scars; the Fed chair felt unwell due to dehydration toward the end of her speech and briefly sought medical attention
- After hovering near zero for months, the Bank of Japan’s main inflation gauge dropped into negative territory as weak domestic demand and plunging oil prices wiped out the impact of Governor Haruhiko Kuroda’s unprecedented monetary stimulus
- Prime Minister Abe’s reboot of his economic agenda has left analysts scratching their heads, after Japan’s leader unveiled three new policy pillars -- strong economy, child care support, social security -- without tying them to previous plan
- Money is leaving China faster than ever, according to a Bloomberg gauge tracking capital flows, as an estimated $141.66b left the country in August, exceeding the previous record of $124.62b in July
- Brazilian policy makers will ignore pressure from traders to increase borrowing costs and are confident that keeping interest rates on hold is sufficient to tame inflation, central bank President Alexandre Tombini said
- Four years after Obama’s August 2011 ultimatum that Syrian president Bashar al-Assad must go, world leaders descending on New York for the United Nations General Assembly are closer to agreeing that Assad can stay
- Volkswagen AG is set to appoint Porsche brand chief Matthias Mueller as its new CEO and announce the departure of top executives in a sweeping overhaul to begin repairing the carmaker’s image tarnished by rigged emissions tests
- Sovereign 10Y bond yields mostly higher. Asian stocks mostly higher; European stocks and U.S. equity-index futures gain. Crude oil and copper gain, gold falls
US Event Calendar
- 8:30am: GDP Annualized, 2Q T, est. 3.7% (prior 3.7%)
- Personal Consumption, 2Q T, est. 3.2% (prior 3.1%)
- GDP Price Index, 2Q T, est. 2.1% (prior 2.1%, revised 2.1%)
- Core PCE, 2Q T, est. 1.8% (prior 1.8%)
- 9:15am: Fed’s Bullard speaks on St. Louis
- 9:45am: Markit US Composite PMI, Sept. P (prior 55.7)
- Markit US Services PMI, Sept P, est. 55.6 (prior 56.1)
- 10:00am: UMich Sentiment, Sept F, est. 86.5 (prior 85.7)
- Current Conditions, Sept F (prior 100.3)
- Expectations, Sept F (prior 76.4)
- 1 Yr Inflation, Sept F (prior 2.9%)
- 5-10 Yr Inflation, Sept F (prior 2.8%)
- 1:25pm: Fed’s George speaks in Omaha, Neb.
DB concludes the key event wrap of the previous day
So after another volatile and ultimately weak day for risk assets once again yesterday, Fed Chair Yellen, speaking after markets closed, underlined her case that raising rates will be appropriate later this year but also sought to add some soothing words around the outlook for the US economy. Yellen said that ‘it will be likely appropriate to raise the target range of the federal funds rate sometime later this year and to continue boosting short term rates at a gradual pace thereafter as the labour market improves further and inflation moves back to our 2% objective’. Yellen suggested that this was the view of most FOMC participants and that the more prudent strategy would be to begin tightening in a timely fashion and at a gradual pace. Unsurprisingly, the Fed Chair highlighted the well versed transitory factors holding back inflation, namely lower energy prices and the stronger Dollar but made mention once again that these factors are expected to wane. The labour market was highlighted as ‘not being far away from full employment’, while her view on US economic prospects was that they ‘generally appear solid’.
While the overall tone felt certainly more upbeat relative to last week, warning signs were still signaled which should keep the market guessing. Yellen noted that ‘we cannot be certain about the pace at which the headwinds still restraining the domestic economy will continue to fade’ and that ‘recent global economic and financial developments highlight the risk that a slowdown in foreign growth might restrain US economic activity somewhat further’. While she was of the view that the Fed will be ready to move later this year, it was noted that ‘if the economy surprises us, our judgments about appropriate monetary policy will change’. December liftoff expectations have been given a boost following the speech with a move now priced at 49%, up from 43% this time yesterday. Markets are pricing in little chance of a rate rise next month however, still hovering around 18%.
Overnight in Asia the only major data point has been Japan’s August inflation print. Looking at the numbers and it was something of a mixed report with the CPI excluding fresh food figure slipping into negative territory for the first time since April 2013 at -0.1% YoY, although the number excluding food and energy rose to +0.8% YoY. The report and the potential implications of it for the BoJ’s purchase program has helped Japanese markets buck the trend in overnight action with the Nikkei up +0.7% whilst the Hang Seng fell -0.5%, the Shanghai composite fell -1.8% and the broad S&P Asia 50 was down -0.7%. Debate as to whether the BoJ will adjust their policy at their next meeting on October 7th will certainly continue after these latest reads.
Back to yesterday. Sentiment continues to be rocked in markets at the moment and yesterday’s news out of Caterpillar that the company is set to cut up to 10,000 jobs as well cutting its full year revenue forecast set a ripple effect through the industrials sector. Much like Wednesday, the S&P 500 did stage a +1% rebound off the intraday lows but it was too little too late once again as it finished the session down -0.34%. The index is in fact down 4.4% now from the highs shortly following the FOMC decision last week after the fifth daily decline in the last six days. The losses were steeper in the European session as the fallout from the emissions scandal spread to other carmakers with BMW now the latest to come under scrutiny. That saw the DAX (-1.92%) plummet to the lowest level this year while the Stoxx 600 sold-off -2.12% with YTD returns dipping into the negative territory for the first time this year. It’s amazing to think that the index at one stage in April had seen YTD gains as high as +21%. European credit markets were also weak yesterday with Crossover and Main widening 18bps and 5bps respectively. The commodity complex was actually relatively well behaved. WTI and Brent finished up just shy of a percent, while Aluminum (+0.13%) and Copper (-0.12%) were little moved. Gold was the outlier however after surging over 2% yesterday to the highest level in a month.
Meanwhile, it was a big day for Central Bank moves yesterday as we saw Norway, Taiwan and Ukraine all ease. The big surprise was in Norway where the Norges Bank cut the overnight deposit rate by 25bps to 0.75% and to an all-time low while at the same time hinted at further cuts ahead. The first cut by Taiwan since 2009 was also a surprise to the majority, while in the Ukraine borrowing costs were lowered for the second consecutive month. Refreshing our numbers and assuming the ECB as representing 19 CB’s, we make that 56 different Central Banks to have eased monetary policy this year, of which 13 by our count were a surprise relative to market expectations.
There was plenty of economic data for markets to absorb yesterday too. In the US August headline durable goods declined -2.0% mom, although slightly better than the -2.3% decline expected with the fall attributed to the volatile aircraft and defense components. Excluding transportation, the print was a smidgen behind consensus (0.0% mom vs. +0.1% expected). Core capex orders (-0.2% mom) fell as expected having risen 2.1% in July. Meanwhile, there was further weakness in the Kansas City Fed manufacturing activity index which printed at -8 (vs. -6 expected) for September. There was weakness also in the Chicago Fed national activity index (-0.41 vs. +0.24 expected) however better news was to be had in the housing sector. New home sales rose +5.7% mom in August (vs. +1.6% expected) with a decent upward revision to July also. That saw the annualized rate of new home sales rise 30k to 552k and the highest in seven years. Finally, initial jobless claims printed at 267k last week, nudging the four week average down to 272k and the lowest in more than a month.
Before this in Europe, headlines dominated by the emissions scandal overshadowed what was actually a relatively upbeat German IFO reading. The September business climate headline reading rose a modest 0.1pts to 108.5 (vs. 107.9 expected). This was given a lift by the expectations index which rose 1.1pts to 103.3 (vs. 101.4 expected) and the highest since April which offset a slight decline in the current assessment index to 114 (vs. 114.7 expected), a fall of 0.8pts. Our colleagues in Germany believe that the latest data supports their case of 0.5% quarterly growth in Q3, in line with what the composite PMI suggested.
Before we take a look at today’s calendar, one event which will be worth keeping an eye on this Sunday will be the election in Catalonia. Yesterday, DB’s Marco Stringa and Abhishek Singhania published a note updating the current situation and looking ahead to what the elections may mean further down the line. They note that the recent polls have suggested pro-independence Junts pel Si and CUP are set to win the majority of seats and are creeping close to the majority of votes as well. Junts pel Si has argued that an absolute majority would be sufficient to declare victory in the de-factor referendum for independence regardless of the share of votes in any case. It pledges to declare unilaterally the independence of Catalonia in about 18 months unless the central government allows a binding referendum on independence. Our colleagues are of the view that given there is little else keeping such a heterogeneous coalition together, the pair will continue on the pro-independence path. However, what makes this more difficult is that any changing in the Constitution to allow Catalonia’s independence appears to be an extremely demanding scenario from both a legal and political perspective. The team also think that from an economic and financial perspective, a unilateral declaration of independence by Catalonia would likely be a lose-lose outcome for both Catalonia and Spain. There is also the risk that the election will leave a deeply divided Catalonia and deep division between Catalonia and the central government, so a negative outcome can’t be ruled out. Marco and Abhishek ultimately believe that a compromise in 2016 seems the most reasonable scenario, but it won’t be easy.
Turning over to today’s calendar now then. It’s a fairly quiet end to the week in Europe this morning with just French consumer confidence and Euro area money supply data due. Over in the US this afternoon we will get the third and final reading for Q2 GDP where the consensus expectation is for no change to the 3.7% print. We’ll also get the flash services and composite PMI readings along with the final September print for University of Michigan consumer sentiment. Fedspeak wise it’s the turn of Bullard and George today.
- 14145 reads
- Printer-friendly version
- Send to friend
- advertisements -




"Hopes" Of Fed Rate Hike
Has everyone been asleep the last couple days except me?
We raise rates......we implode......simple as that.
Renewed hopes...
It's pump and dump time, beechezzz.
It's ok everyone, each day that passes we're one day closer to when the machines eat themselves alive and the HFTs get strung up as a scapegoat. Bye bye to Virtu.
The real scalpers have quantum computers with extradimensional processing capacity. Everyone else is just a piker that's about ready to be hoisted on their own petard.
"CERN" is a stock trader algo.
Fickled
Better said: "Futures Surge On Sliding Yen"
It's all Bullshit!!!! It wasn't all that long ago that futures would be down 200 points on interest rate hike talk.
And if you like your Bullshit, you can keep your Bullshit!!!!
"It's all Bullshit!!!! It wasn't all that long ago that futures would be down 200 points on interest rate hike talk."
YES! Thank you.
The only thing better than profits is free money.
We are all in the middle of the Human Centipede. Wall Street is about to shit in our mouths. After digestion, we will shit in China's mouth. Mmmmmmmmmmm!
Now THAT was a disturbing, but excellent movie. I thoroughly enjoyed both Human Centipedes.
You just made a great point.
Where are those jack-asses from a few months ago complaining gasoline prices are too low? “Gas is to low, gas is to low”.
LOL
You don't need us to tell you that gas prices are back on the rise...
https://www.youtube.com/watch?v=dAkxR9T01pw
We'll be back later to tell you what to think.......until then......try not too.
Hey Vince. Off topic but I gotta know. How does it feel to be the last man to have a romp in the hay with Hillary? Can't imagine it was worth getting shot over.
"Arkansas state troopers who guarded the Clinton's mansion, reportedly said that Mr Foster used to turn up "like clockwork", often staying the night, when Bill Clinton was out of town."
She needs to check the wreckonomics first by the end of the year to know if she needs to raise rates, logical naturally.
"We raise rates......we implode......simple as that."
The Feral Reserve knows that, but to admit that would be to admit that the economy isn't in the rosey recovery they depicted.
They have truly painted themselves into a corner, and the only thing they have left now is Verbal Easing, which is starting to wane.
Verbal easing? is that like mental masturbation?
Can't get a clearer example of the fed doing what it thinks the market wants rather than what the economy needs. Single mandate fed: stock market.
Mindless zombies hungering for any productive flesh. Sustainability never crosses their minds.
Implode???
More like CRATER.
Yeah raise those rates, Yellen. PLEEEEEZE.
She will not do it. She cannot bring herself to do it. She is not that ruthless. The human side, whatever vestige that was left, was exposed yesterday.
She will resign...for "Health Reasons".
Then that ruthless son of a bitch Stanley Fischer will take over. And he is absolutely corrupted to the core and ruthless.
He will do it.
And you will all...ALL...end up HOMELESS as Cede and Company forecloses on your home...since they hold TITLE.
You paid off your mortgage to whom?
Oh. I am sorry. Your lender sold that mortgage off, many years ago to Cede and Company.
You were paying the wrong lender all of that time??? Your Title Insurance Company said that your lender held the note? But they failed to tell you that they never did?
Stupid you...paying the wrong entity for 30 fucking years because you failed to verify that the lender actually had the legal right to collect, that they owned the note, which had been rehypothecated to the Moon and back. You failed to TAKE RESPONSIBILITY and failed to do your own due dilligence.
You know? Personal responsibility is not just a slogan.
Well they did not. Cede and Company held and owns the note. And you did not pay them a dime. You are in arrears and they are demanding that their note be paid...in full.
Now you can stand in line and SUE your Turnip Title Insurance Company for malfeasance of the fiduciary responsiblity and incompetence if you want.
But suiing a BANKRUPT FIRM will not get you anything of value. And you still lose your "PAID OFF" home. FORECLOSURE and EVICTION is your destiny.
And you thought that you had...a future and a retirement. Now that was just a Dream Away....just a dream which has NOTHING TO DO WITH REALITY. It is what you get for living in a fantasy.
And if you think that Cede and Company's holdings are just restricted to the United States well you had best be aware that they hold title to most of the World's Real Estate. This is GLOBAL.
yellen has a stroke, vw is imploding, cat is laying off 10,000, the market is green..it all makes sense..sarc
So we've got that going for us......which is nice.
Gunga galunga
Now if we can get a 90% reduction or more in .gov workers. That would be worth another 10k rise in the Dow.
Green, like spray painting your dead lawn green. Never looked better.
Note to Traders - Yes, a rate hike by the end of the year does seem very plausible. And if you believe that, I've got a bridge in Brooklyn to sell ya.
Even common fish have longer memories that the markets. crazy!!!
So, stronger dollar = more expensive US goods = good for the US economy = bullish equities?
The post assumes that there is law and order in the financial system, hence correlations exist.
That is entirely untrue. The "market" is simply a lawless digital game, just like Playstation or Xbox with zero correlations.
There is no market. There is only a game. Nobody cares, that is until a market is allowed to function......soon.
In a functioning market, Dow can't be higher than 12k.
In this digital game market, Dow can be 30k, 50k, 1 million.
The phrase "Federal Reserve Controls...." assumes that all offices which execute such orders, will actually obey the order.
It assumes that the Fed control and obedience is like Military control.
No it's, not. Nobody cares about the Fed.
Kotfare- You nailed it !
As if rates raise during holidays....yeah....uh-huh.. then after holidays , it will have been a year since grampa yellen said " a couple"...
So much bullshit to dispense, so little Fed honesty.
Yellen cheerleading the market higher until earnings come next month!
Is this a great country or what?
Earnings are relative. to. expectations.
Manage expectations and you manage the economy.
If you listen to MSM, then you KNOW that everything is simply groovy. Why all the frowns when you can turn them upside down?
The market will not be able to ignore the pinch of the Fed PURPle NIRPle that is coming.
Umm.... somebody tell the algo's that the Fed doesn't matter anymore
Good day to roll out of your 401k, 403b, IRA, and BTFD accounts.
Renewed hopes...
The Fraud, I mean FED acts as if raising rates is of a Biblical nature! we give these people way to much attention, they are do nothing frauds.
Jaw bone bullshit. If these arrogant idiots ever raise rates they will QEEEEE a week later, they will probably call it "the booming economy reverse negative interest and print for the people plan" or some other flowery shit. Fuck these stupid fucks and buy gold and silver.
Everyone wants to feel good that the Fed still COULD raise rates. They don't want to believe we're in a liquidity trap. Those people can move the market... for a while. The reaility is, once the morphine drip is slowed, the pain WILL return despite their optimism.
Janet herself laid out a grocery list of global concerns, pointed to slack in employment, noted inflation is not at their target and then concluded "but we're going to raise rates anyway before year end." Even in the mad world of central banking that still qualifies as delusion. Prossibly insanity.
Janet is setting up her exit plan so she can get out before the shit hits the fan!
I am resigning for health reasons and to spend more time with my family.
when she is done with that Out.. she can pass it on to Hillary.. it's a woman thing people will understand
Fed omnipotent? No!
Fed kinda pathetic? Yes!
Is this a vote thing?
Notice how the narrative changed? First the markets get "upset" on fear of a rate hike and now the market "hopes" for a rate increase. Oh the insanity of it all. They cannot raise rates without hurting the EM's, causing a massive US Treasury dump and because it will increase the FED balance sheet and will take money velocity to near zero.
Fed Mandate..... Keep stocks up, by hook or by crooks, lots of crooks.EOM
Yeahbut...what's caused the BRL to rise strongly against the USD & UKP over the past 24hrs?
Yesterday it reached BRL4.23 = USD1. Today it's changed to BRL3.93 = USD1. That's a gain of about 4.2% in hours.
BRL-vs-USD
Same thing with the UKP.
Go chart jockey go.
Surge on bullshit.
And has nothing to do with it being the last day of the fiscal period known as P9.
And the last day of the fiscal quarter known as Q3.
When our economy rested on the prosperity of its citizens, we had a chance. Now our economy has split into the citizen's economy and corporations economy. Corporations, be they Goldman or Apple, or any other, no longer depend on consumers for their economy. They now depend on government policy if not direct financial sustenance to fatten their pockets. It is obvious that Wall Street, nor banks nor any other corporate success is any representation of OUR prosperity. The one thing that is also obvious is that while these corporations are not dependent upon us, we are dependent upon them. If and when this crony craptosity crashes,it will take us down with it.
Wall Street makes money on market swings... Somebody definitely turned on the Yo Yo machine...
Yep; it has become a "Daily Show", for example today it will shoot out of the gate upward (buy any puts), then by 10-10:30am it will tank lower (sell those puts & buy them calls), then make a gradual "up & down" upward move, then around 2pm it will begin to decline and then it will magically move upward again (sell the calls at 3:30-3:55) & hit their target of 1940 to 1950 on the S&P. This is the upward day, which we are due for. Usually Friday's are "sell-off" days, but it seems to be every other Friday and since last Friday was a sell-off, then today will not, but next Friday will be. Real pathetic!
We all should quit investing in this "fraud" market.
Is everyone on drugs??????? The Fed can't raise rates...they have 3.5 trillion of excess reserves in the system and there is no demand for money. And Yellen had a stress attack last night...Probably realized she was lying and vapor locked....
Raise rates and the market rallies???Who is trading this market Stevie Wonder???
Damn looks like a "triple bitchin Friday", rally at the open for Janet, Rally moar at 9;25 for Bullard and rally again for George. Buffet going to be cheerleader in Omaha?... That would be sweat!
Well ok, I admit I smoked a little weed before I saw that the market was pretty oversold and went long at the bottom yesterday with that lovely financialy engineered 3x etf... but hey, don't judge me dude...
Besides, she didn't raise rates, she just said she still might... right before the alzheimers kicked in and she forgot where she was. You take this shit too seriously, have a toke and relax. We can't fix anything until this monster colapses completely.
Man, if I had any money left in the market I'd sure as shit put it into cash now. It's now the mirrors room at the circus or whatever you call that place where there's all kinds of distorted mirrors that make you look (weird). I always found the mirror rooms unsettling - to say the least. And I wouldn't trust myself to do anything naturally or right when I was in there. Always felt off-balance.
Should have gone long jaw bone long furking time ago.
Jawboning = kick ------> can ---------> road.
It's all the USD/JPY algos in the thin overnight trade. Once actual stock starts trading hands people will be getting out. Last night Yellen laid the seeds of the next big decline. Great time to short
"hello Citadel? Start the buy program when I say I'll be raising rates".
"How will we know to unleash the Kraken? Will there be a dip first? We've gotta make some vig on this".
"Don't worry. You'll know when".
You bought the dip now sell the rip.
Raise rates my ass. None of the factors she cited last week as an excuse not to raise rates are going to change before the end of the year. She also clearly said yesterday that the Fed doesn't expect inflation to hit 2% for another 2-3 years.
She also said that was "transitory" and so the Fed won't take it into account. Many were counting on the Fed waiting to hit some inflation target that would never be reached with the bullshit calculation method...now she said it doesn't matter
She smote the great unwashed with the jawbone of a jawbone.
THe FED said June, then September now end of the year. What not even a month or date. What BS they have lost all control. this is nothing but a dead cat bounce. IMO the selling is not done.
According to Itau BBA:
http://is.gd/XzTkOs
The Big Fear
Thus, Fed announcement day arrived with most equity markets up 5%-10% off the late August lows, commodity prices higher and rates priced for Fed action. The main concern coming into the Fed meeting was not that the Fed would hike; it seemed quite clear that it would not go against virtually the entire global economic policymaking community and raise rates. No, the concern was that the Fed would stand pat and stocks, rather than rally, would sell off.
Lo and behold, that is exactly what happened, and that is why we need to be very, very concerned about how things move from here. It remains unclear whether the equity market reaction to the Fed decision was (hopefully) just a classic case of buy the rumor (no hike) and sell the news, or something much worse, namely that investors might be starting to price in policymakers? loss of control – The Big Fear.
The Big Fear of policymakers losing control has been lurking underneath the global equity market for years, underpinned as markets have been by central bank support. Think of it this way: there are two global growth drivers: China and the US. Recently, the competence of the policymaking community in both countries has been called into question, suggesting a possible loss of faith in policymakers, which if true is very worrisome, thus the Big Fear concept.
Why is the Big Fear so worrisome? It’s simple. If investors lose faith in policymakers and decide that cash or bonds are a better place for their money, then stocks are likely to sell off much further. How much further? One never knows, but maybe asking a few questions might help. First, at what level does the S&P need to be for the Fed to engage in QE 4? Second, what S&P level will be considered cheap (keep in mind 2016 E estimates need to come in sharply)? I don’t know the answer to either question, but it seems reasonable to expect that the S&P would need to go much lower than the 1870 level it bottomed at in late August or the 1830 level of a year ago.
The economic implications of such a sell-off would likely be a US and global recession. Such an environment could create a negative feedback loop between financial markets and the real economy, which policymakers would find very difficult to break.
It seems clear that the Fed will not raise rates this year, neither next month when they meet again nor in December, which is the last meeting of the year. Will they raise rates in 2016? From this armchair, the odds are against it, as the forces of recession gather while the forces of reflation stagnate. On this front, one has to question the Fed's 2016 inflation forecast of 1.6%, up from 0.4% this year. The Fed’s crystal ball has been mighty cloudy for years, but this forecast takes the cake.
A look at the global economy helps explain why. Four factors stick out: excess debt, an absence of inflation, insufficient demand and excess supply of raw materials and manufactured goods. None of this is new – what is new is how the various hopes and remedies have fallen short while the problems deepen. The toxic combo of excess debt and disinflation is one powerful reason why the Fed did not move, and excess supply in commodities and manufactured items (look at the PPIs around the world) is another. The global economy needs demand-creation or production shut-ins, and to date both have been lacking.
There are small signs that the commodity complex is starting to finally adjust, with closures, dividend cuts and stock issuance in the mining sector and talks about talks in the world oil market. However, the manufacturing segment of the world economy is quite far behind the commodity segment, suggesting that China's need to shift excess production will ensure manufactured-goods disinflation for the foreseeable future.
One can wish for inflation and for the Fed to be able to hike, but one also needs to be focused on the realities of the current global economy. Where is the demand going to come from? Who is going to shut in production? Let?s look at the three main economic regions: Asia, Europe and the Americas. Asia is likely to be a source of manufactured-goods disinflation as it seeks to rebalance itself to a China that is a competitor first, a customer second. Japan's recovery is sputtering; it will continue QE while a fiscal stimulus package seems quite likely in the months ahead. Europe remains quite weak, and with the refugee issue now occupying policymakers, ECB-led QE seems the only game in town.
The Americas is a concern. South America is in a deep funk, whether it is Mexico's subpar growth rate, Brazil's political and economic travails, Andean copper dependency or the impact of weak oil on countries such as Colombia or Venezuela. All this is pretty well known.
The US is most worrisome because of its combination of still-high equity prices and a very bare policy toolbox to confront any economic weakness. How bare? Well, monetary policy is on hold, and the bar to QE4 is likely a much lower S&P. What about US fiscal policy, one might ask? Great question. Here is the only thing one needs to know about the US presidential election process: it takes fiscal policy flexibility away and locks it in the freezer until late 2017, two whole years from now. In other words, at a time when the US economic expansion is close to seven years old, with the Fed on hold, incomes flat, debt levels high, a strong dollar and absolutely no inflation, fiscal policy is locked away for the next two years at least!
By the way, the UK confronts similar issues and could possibly be a canary in the coalmine for US monetary policy – QE for the people on BOTH sides of the Atlantic perhaps? The UK's negative rate discussion is likely to move across the pond over the next quarter or so. One other way of thinking about it is this: which comes first, the end of ECB QE or QE4 in America? I would go with the latter.
How does one vanquish the Big Fear? With aggressive policy action on the demand-and-supply side. What is the likelihood of that? Exactly. Seen in this light, it makes perfect sense for investors to worry that policymakers no longer have their back, and thus they take some money off the table. One analogy is that the US economy is like a ship that has engine trouble, is drifting towards the rocks and is left to hope that the wind shifts and takes it away from the reef…. not exactly a bull-market, high-valuation tableau. Hope is not a strategy.
CNBC, they're such shameless whores:
"A rate hike will come and the bull market will stumble, bond yields will climb and the economy will slip into a recession. This we know." 28 Jul 2015
Today: "Gold falls as Yellen speech on rates boosts dollar" CNBC 9/25/2015