Archives of “June 2019” month

rss

Responses to the Fed continue – FOMC was ‘notably dovish’

  
  Analysis

James Bullard was a dissent on the Federal Open Market Committee today. Speaking of dissent, I’ve pretty much only seen one dissenter in the responses to the FOMC decision.

That the FOMC is not as dovish as first responses indicate … more on that here (scroll down)
Anyway, this response from Westpac NZ. In brief, bolding mine:
  • notably dovish
  • will cement rate cut expectations
  • Powell underscored that trade and global growth are the key concerns. 
  • The dot plot shows a median steady policy this year but that obscures a big dovish tail with 8 among 17 projecting cuts this year – almost all (7) project 2 cuts this year. If just one more Fed official joined this group in calling for a cut(s) the median would have shifted lower. 
  • In any case the change to the 2019 dots is a notable shift 
  • Powell noted there was “not much support for a cut now, bar one”, though they will act “promptly if appropriate”

Fund manager Gundlach says Fed is behind the curve, a rate cut would increases the chance of recession

  
  Analysis

Jeffrey Gundlach is the founder, and CEO, of DoubleLine Capital

Response to the FOMC:
  • bond market has been saying that the Fed’s policy is too tight by a very large amount for the past several weeks, if not few months, and the Fed simply cannot ignore that
  • a lot of people think if the Fed eases it’ll be an insurance policy against recession
  • But if past patterns are prologue, if we actually start steepening out the yield curve from an inversion three months to 10 years, that’s actually highly coincidental with the coming recession
  • Fed message today was essentially: the case for easing has strengthened, we hope that changes soon, if it doesn’t we’re behind the curve
Jeffrey Gundlach is the founder, and CEO, of DoubleLine Capital 
At a guess if G says the Fed is behind the curve then after one cut he’d be expecting there will be more to follow in quick succession.

US 2-year yields fall to lowest since 2017

  
Analysis, Global Indices

June lows give way

The bond market is clearly pricing in a larger chance of rate cuts. The yield on the two-year note is down 10 basis points to 1.76%.
June lows give way

The good news for the economy (if you want to stretch) is that the yield curve is steepening with 2s10s up 7 bps and 2s30s up 8 bps.  The message here is that the Fed is getting the message that it needs to cut rates.

Change in median Fed funds forecast points to cut

  
  Analysis

One cut but followed by a hike later

What’s more important? Whether the Fed cuts one, or whether it continues to cut?
I would argue it’s the latter but the market is often focused on the first part of the equation. I’m reminded of a quote from former St Louis Fed President Bill Poole:
Poole believes people in the press and financial markets are usually asking the wrong question. ‘What is important is not the policy action at the next FOMC meeting,’ he said, ‘which is typically what people want to know, but the policy regularity that will extend across many FOMC meetings, which is what people should want to know.’
The Fed forecasts signal lower rates next year and the median was close to showing the same this year but there’s an open question about whether that will be an insurance cut or the start of the cycle.
One cut but followed by a hike later
The other side of the argument is that every journey begins with the first step so whether it’s four cuts or one cut; it starts the same way. The Fed also has a long history of over-optimism.
The other interesting change is on inflation, where there is a solid downgrade this year to 1.5% and a range of 1.4-1.7%. That’s worrisome and well-below target. The forecasts show a recovery next year but some Fed members include a rate cut as part of that equation, so it’s not necessarily representative.
Overall, the market has probably gotten it right here but I wouldn’t sell the dollar here because there’s a good chance that Powell highlights some of the good things in the economy, and that confuses markets.

FOMC full statement for June 2019 meeting

  
  Analysis

Fed keeps rates unchanged.  

Information received since the Federal Open Market Committee met in May indicates that the labor market remains strong and that economic activity is rising at a moderate rate. Job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Although growth of household spending appears to have picked up from earlier in the year, indicators of business fixed investment have been soft. On a 12-month basis, overall inflation and inflation for items other than food and energy are running below 2 percent. Market-based measures of inflation compensation have declined; survey-based measures of longer-term inflation expectations are little changed.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 2-1/4 to 2-1/2 percent. The Committee continues to view sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective as the most likely outcomes, but uncertainties about this outlook have increased. In light of these uncertainties and muted inflation pressures, the Committee will closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2 percent objective.

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; Richard H. Clarida; Charles L. Evans; Esther L. George; Randal K. Quarles; and Eric S. Rosengren. Voting against the action was James Bullard, who preferred at this meeting to lower the target range for the federal funds rate by 25 basis points.

Federal Reserve holds rates in range of 2.25%-2.50%, as expected

  
  Analysis

Highlights of the June 19, 2019 FOMC decision:

fed
  • Bullard dissents for cut
  • Median dot is for no change in 2019, but nearly half see lower rates
  • Median at end of 2020 is 2.1% vs 2.6% prior
  • Drops language saying it would be ‘patient’ on rates
  • Household spending appears to have picked up but business fixed investment has been soft
  • Activity has been rising at a moderate pace
  • Fed will act as appropriate to sustain economic expansion with a strong labor market and inflation near target
  • Uncertainties have increased regarding outlook for sustained economic expansion
  • Household spending appears to have picked up from earlier in the year
  • Indicators of business fixed investment have been soft
  • Survey-based measures of longer-term inflation expectations are little changed
The kneejerk is lower in the US dollar across the board but only 10-20 pips.
I’m surprised that survey-based measures of inflation were downgraded after the U Mich survey showed a fall. They may want to see more evidence before reacting to it.
Key passage:
The Committee continues to view sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective as the most likely outcomes, but uncertainties about this outlook have increased. In light of these uncertainties and muted inflation pressures, the Committee will closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2 percent objective.

US Stocks close the day with gains but late run to new session highs stalls ahead of close

  
Analysis, US Market

Still….stocks are liking growth and Fed cut potential

Honestly, the debate on “will they/should they/won’t they/could they” willl continue, but stocks seem to be going with the idea a cut is ahead and growth continuing.  The Nasdaq and the S&P both traded to new session highs into the close but there seems to be some profit taking ahead of the close.  The Dow fell short of new highs in the last hour. Nevertheless, the indices are ending with ok gains.  The market is ending the session up for the 3rd day in a row now.
The final numbers are showing:
  • The S&P index is closing up 8.60 points or 0.30% at 2926.44. The high reached 2931.74 in the last half hour of trading, but backed off into the close
  • The Nasdaq is closing up 33.44 points or 0.42% at 7987.32. The high reached 7998.59. The low reached 7930.38
  • The Dow is closing up 38.19 or 0.14% at 26503.73. The high reached 26569.75. The low reached 26415.05
Some winners:
  • Adobe +5.21%
  • UNITEDHEALTH, was 123%
  • Bristol-Myers Squibb, +1.80%
  • Netflix, +1.79%
  • Intuit, +1.72%
  • General Mills, +1.64%
  • United Continental, +1.44%
  • Walt Disney, +1.34%
  • Stryker, +1.17%

Some losers on the day include:

  • Chewy, -6.66%
  • Charles Schwab, -2.52%
  • Boeing, -1.43%
  • Bank of America, -1.05%
  • Micron, -1.02%
  • Twitter, -0.98%
  • Wells Fargo, -0.98%
  • PNC financial, -0.88%
  • J.P. Morgan, -0.75%
  • Intel, -0.63%
  • Citigroup, -0.59%
Go to top