Did Fears of the Fed Spark Bond Market Selloff?

Last week in the capital markets: Bonds sold off globally in the week before the Fed meeting.

It was a quiet week for economic news, and the geopolitical front was relatively quiet (less fighting but more sanctions in Europe, moving toward a bigger effort against ISIS) but fears that the Fed is behind the curve seemed to be the ones that led investors and traders to act last week. Continue reading

The Dollar Jumped and Stocks Rallied Last Week … What were The Triggers?

Concerns about the Ukraine and Islamic State remained high last week, but diminished at week-end on news of a cease-fire in Ukraine and NATO resolve to address the Islamic State. The European Central Bank (ECB) surprised markets (bullishly), and U.S. economic news was biased to the positive.

Continue reading

Summer Ends Quietly…with a Market-Moving Speech

Last week in the capital markets: A Quiet Last Week of August.  Economic news again suggested the U.S. economy is fine, while Asia and Europe are facing headwinds.  Mario Draghi’s dovish-sounding speech at Jackson Hole a week ago was probably more market-moving than anything that happened last week. Continue reading

As the Economy Improves, the Fed Recalibrates its Message

As the economy and labor market improve, quantitative easing (QE) is wound down and the first rate hike draws nearer, the language of the Fed evolves accordingly.  Both the minutes of the June FOMC meeting and the remarks of Fed Chair Janet Yellen at Jackson Hole were incrementally less dovish than earlier language.  The pace of these changes suggests that the Fed is comfortable “the ball is in the fairway”…the likelihood of a surprise policy shift is low. Continue reading

Signs Point to Continued Slow Growth Ahead

Last week’s data provided a mixed picture of the economy. Businesses produced more, but demand growth was soft. That combination suggests slower future economic growth, not acceleration (but still growth, not recession). Some points to note:

  • The NFIB Small Business Optimism Index ticked up from 95.0 to 95.7.
  • The Empire State (NY Fed) Index slipped, but remains strong at 14.7.
  • Industrial production rose, led by auto production, and capacity utilization ticked up slightly as well.
  • Business inventories rose modestly…slightly faster than sales.
  • Consumer confidence slipped, despite good job market data…too many war/conflict/disease stories in the paper? That said, retail sales managed a 0.2% increase month over month (m/m) – still below expectations.
  • Mortgage applications ticked down week over week (w/w); the generic rate dropped to 4.24%.
  • Inflation remains comfortably below trigger levels for Fed tightening

Continue reading

Geopolitics Trumped Economics in Last Week’s Capital Markets

Observations on the Capital Markets – Week Ended August 8, 2014

Ukraine developments, more than economic news, seemed to drive the day-to-day pattern of market returns.  Russia first massed troops on the border, prompting NATO to warn of imminent invasion risks, then sent them back to their barracks, keying Friday’s rally.  The conflict is far from over.

Developments in Gaza (a brief cease-fire) and Iraq—where Obama (reluctantly, it seems) authorized airstrikes against ISIS, leaving both domestic hawks and doves feeling unsatisfied—also made the front page, while central banks in Europe, England, Japan, Australia, and India all left policy essentially unchanged—not front page news.  The global composite Purchasing Managers Index (PMI) made a new 9-year high in July at 55.5 ‑ but with war risks high, no one paid much attention.         Continue reading

The FOMC Holds Steady as Markets Hit a “Tipping Point”

 

Observations on the Capital Markets – Week Ended August 1, 2014

The FOMC met last week, expressed satisfaction and maintained course. While their policy decisions (continue the taper—now $25b—and keep the Fed Funds rate where it is) were no surprise, the language of the Fed statement was tweaked to reflect the continued/continuing improvement in the economy and labor markets (e.g.: “the likelihood of inflation running persistently below 2% has diminished somewhat”).  The Fed feels it is accomplishing its goal…so a continuation of policy normalization is appropriate.

At the same time, the Fed statement said “…a range of labor market indicators suggests that there remains significant underutilization of labor resources.” Analysis: the Yellen Fed is moving cautiously…with Japan and Europe still weak, the Fed appears willing to risk an inflationary boom in the U.S. to minimize the likelihood of having to fight a recession and/or deflation when it has a bloated balance sheet and low Fed Funds rate, but very robust tools to fight inflation.  As I said on CNBC last week, a submarine commander doesn’t give the order to submerge when most of the hatches are closed.

Continue reading

Follow

Get every new post delivered to your Inbox.

Join 91 other followers