"The Day Of The Dovish Hike?"

Tyler Durden's picture

The paradox continues: on one hand stocks continue to anticipate a reflating economy, with S&P futures hitting a new all time high overnight; on the other hand, the weaker dollar and especially Treasury yields are increasingly worried that today's rate hike, the 4th in the past decade, will be another policy error, leading to more curve flattening and eventually a deflationary outcome.

And while there is little doubt Yellen will hike today as Goldman, and consensus, expect, the question is what the future pace of rate hikes will look like and whether the recent disappointing CPI prints will mean and "one and done" for the rest of the year from the Fed. While there is some possibility of an unexpectedly hawkish statement from the FOMC, especially if the Fed is worried about an asset price bubble, it is far more likely that today's announcement will be yet another "dovish hike", which is what SocGen's Kit Juckes previews in his latest overnight note.  

Here is SocGen with "The day of the dovish hike?"

At 2.21%, US 10year yields are firmly in the low end of the 2017 range, while at 1.35%, 2s are very close to the highs. The Treasury market is convinced the Fed will hike today, but not convinced about the longer term. Yesterday's NFIB small business survey was just one of the data points to underline why the market is so perplexed. The response on ‘jobs hard to fill' is at 34%, the highest level since December 2000. But we can all see the lack of wage growth, which used, once upon a time, to correlate pretty well with this survey. Hence the call from the likes of ex-Minneapolis Fed head Naranya Kocherlakota for the Fed's inflation target to be raised; at the same time as 10year breakeven inflation rates on TIIPs fall to 1.78%, their lowest level since 8 November.

 

 

The FOMC’s response is likely to be a ‘dovish hike’ and that’s priced in, to a large degree. Uncertain about how much slack there is in the economy or the labour market, FOCM members are inclined to want to ‘normalise’ rates while they have the chance, but they seem very pragmatic about the longer-term outlook.

 

So more likely to raise rates now, without overlay hawkish commentary, and then lay the groundwork for another hike in the autumn if markets don’t take fright in the weeks ahead. That could leave yields in their range, the hunt for carry intact. Obviously, since this is to some degree what the market expects, the converse is also true – a ‘hawkish hike’ would come as a big surprise and unsettle higher-yielding currencies.

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lester1's picture

Someone should ask Yellen point blank if the Federal Reserve has been buying stocks?..

brushhog's picture

Theyre probably not doing it directly so her answer would be "no". Are they providing cheap liquidity to banks and businesses who are, in turn, buying stocks? Definitely yes.

shizzledizzle's picture

That doesn't offer the kind of control you need to backstop EVERY. FUCKING. DIP.

brushhog's picture

Sure it does when you are colluding with massive banks and investment houses like Goldman Sacks, JP Morgan, and the rest. And dont forget other countries and other central banks that are acting as their proxie.

brushhog's picture

Sure it does when you are colluding with massive banks and investment houses like Goldman Sacks, JP Morgan, and the rest. Dont forget other countries and other central banks that are acting as their proxie.

asteroids's picture

A better question would be is the FED naked shorting gold and silver? As far as I can figure out they've lost billions doing so.

rwmctrofholz's picture

First question:  Ms. Yellen, can you outline what Plunge Protection Team's portfolio looks like?

lester1's picture

I've heard FANG stocks and Tesla are part of the Feds PPT portfolio and they own tens of billions in paper gold and silver contracts bought from the COMEX to keep prices artificially surpressed.

 

Audit

 

The Fed !!

Crypto-World-Order's picture

No audit. End it or it will end humanity through total debt enslavement Its the biggest threat to humans.

Last of the Middle Class's picture

Just look at the valuations, you can pick out the PPT protectors and verify it by the names on the CEO office doors. Must be a hell of a thing knowing your stock will NOT go down no matter what and the FED will back you up when the public finally figures out the scam and begins to sell like TESLA and APPLE. Trillions in QE, TARP, PPT and whatever you want to call the fasade that is printing money to save your friends has killed the rest of the country and now they're talking about a rate hike? Absolute duplicity and you're an idiot if you don't see the scam. And that is to say nothing of billions spent to keep gold soft.

brushhog's picture

IDK, all these "hikes" and you still can't get a decent yield anywhere.  3 hikes and my savings account is drawing .05 percent. I remember in the past when they would hike rates, bank interest would bump up immediately. These are like imaginary rate hikes.

lester1's picture

That's because the Fed's PPT is completely unaudited and able to create unaudited electronic money and buy up treasuries and debt. There is zero oversight and they can get away with keeping rates artificially surpressed. They have been doing it for decades, basically stealing from the American people. 

 

Audit

 

The Fed !!

Max Damage's picture

The only thing reflating is stagflation

hola dos cola's picture

SPX almost there. 50p drop next to encourage the buying

Chipped ham's picture

Dovish or Hawkish? This is insane. 

TheNuclearGenie's picture

I would pay to be able to see the faces of all morons here who said the markets we will crash if the fed even hikes 0.25%. HAHA! Here we are and they are hiking again and the markets are pushing all time highs. I have been making a killing in the markets since 09-10 and this is not going to end. Keep bitching about the economy while I get rich, muahahaha.

Justin Case's picture

I'm more concerned with the return of my money then the return on my money.

The trick here is what are all those profits in? When the SHTF how will you protect yoar wealth, assuming you already cashed out of the market. If you haven't, you didn't make jack shit yet. You have potential to make money b/c stocks are pieces of paper not money. Money in the bank is not safe. Better figure out what is going to be a safe vehicle in the near future to retain yoar wealth.

 

onthedeschutes's picture

"stocks continue to anticipate a reflating economy" - Not exactly.

 Stocks continue to anticipate full central bank support of rising asset prices.  

 

There...I fixed it for you.

Justin Case's picture

The FED wants to unwind their balance sheet which is inflationary and raising rates is deflationary. So it sounds like a tight rope for the FED. Latest data indicates that the economy is heading into recession. So this rate decision might be the last one before the FED back paddles and starts up QE again.

There is less and less wiggle room to keep this illusion going. Banks in EU are wilting like flowers without water.

order66's picture

QE would be useless at this point.

Justin Case's picture

The Fed will use QE for buying Treasuries. Monetizing debt obligations. This is how currencies end.

order66's picture

There's no such thing as a dovish hike. That's just nonsense made up by morons who are long everything.

GlassHouse101's picture

She will hike. The reigns have been let go of the horses, the cliff is dead ahead.

Justin Case's picture

She will hike.

That's the accelerant for gold.

8th Estate's picture

Watch as The Bernank prepares to play the ass end of this.

Drive the market up by dumping hot new money into the FANGs, then leave the Fed and join Citadel where you can oversee the dumping of the FANG stocks and drive the market back down when you need to blame Conservatives for a collapse.

And why?

Controlled chaos that you can blame on your ideological enemy, and the sheeple will beg progressives to bring order.

Now Trump owns it, they'll bring it crashing down.

That starts today.

Got phyzz?

Justin Case's picture

US Factory Activity Growth At 8-Month Low: Markit
The IHS Markit US Manufacturing PMI fell to 52.5 in May of 2017 from 52.8 in April, below market expectations of 53, flash figures showed. It is the lowest reading since September of 2016, driven by softer growth of output, new orders and employment.
Published on 2017-05-23

The Duke of Skiatook's picture

Anyone here ever read their mortgage documents?  Found this little humdinger in the default section of a recent mortage I was offered on a paid for rental of mine.  "Lender in good faith believes itself insecure"  So basically if the bank fucks up it's balance sheet then I'm in default and they can call my note at anytime.  I told him to go pound sand and that I didn't need his money that bad.  Fuck all these bankster cuntz.