The "New Normal" Upside Market Catalyst - Fed Doves Emitting Hope

When that canned remarks by Fed Doves is all that is left as a hope-based upside "risk catalyst", as was just defined by Citi's Steven Englander, things are really sad for those who have to justify their excess testosterone by trading every uptick (Econ Ph.D. dissertation on the topic most certainly in progress).

From the head of Citi FX:

SF Fed’s Williams – today's hope for FX risk-on


The SF Fed’s John Williams speaks today at 11:55 (followed by Q+A). He is probably best characterized as a moderate dove, but is much closer to the FOMC center than either Rosengren or Evans who spoke earlier in Asia, and his views have been more responsive to economic conditions than either the extreme hawks or doves


Recently he has discussed the economic outlook and monetary policy in a speech early each month. In early May he was quoted as indicating that he was “increasingly hopeful that the recovery has entered a phase of self-sustaining growth”.  In his June speech on the economy in early June (after the May payroll numbers were released) he took a more cautious tone: “If the outlook for growth worsens to the point that we no longer expect to make sustained progress on bringing the unemployment rate down to levels consistent with our dual mandate, or if the medium-term outlook for inflation falls significantly below our 2 percent target, then additional monetary accommodation would be warranted. In such circumstances, an effective tool would be further purchases of longer-maturity securities, potentially including agency mortgage-backed securities.”


Significantly in that speech he downplayed the May jobs number, focusing on the 12-month average being above 150k. With the June release, NFP growth has averaged 148k over the last 12-months and private NFP has been up an average of 162k. How he now characterizes the labor market and whether he indicates a need for more response will be the signal investors will look for.


Part of the reason for the Friday FX response to payrolls is the concern that the Fed is on hold till after the election on anything but extreme indications of economic weakness – and 80k jobs does not quality as extreme weakness. Were Williams to re-emphasize his view that the numbers are soft but still in line with a moderate recovery, we could see a further sell-off in FX risk. By contrast, if he signals that three months of weak data represent a shift in trend that the Fed to which the Fed ought to respond, the speculation on additional measures would mount again.

Remember when stuff like EBITDA, FCF, PEG, Leverage, Coverage and macro mattered? Neither do we.