China 10 year yields fall 5 bps to 3.08% its lowest level since September 2020
Archives of “May 2021” month
rssFOMC Minutes: Tapering, gold and the USD
FOMC minutes
Two main points:
- Firstly, that supply chain bottlenecks and input shortages may not be solved quickly. In which case these factors could be putting upward pressure on prices beyond this year. The significance is that the FED may be a little more patient on inflation rising.
- Secondly was the reaction by the markets to this sentence: ‘ a number of participants suggested if the economy continued to make rapid progress towards the Committee’s goals, it might be appropriate at some point in upcoming meetings to begin discussing plan for adjusting the pace of asset purchases’ . Now this is very self evident. Of course at some point in the future it will be relevant. It is normally a filler line to the minutes. However, it send US 10 years flying high and the USDJPY higher with it.
This of course sent gold lower. However, crucially the $1860 level held and the short term upside bias remains in place technically. However, it tells you how jittery the market it to tapering. To even to begin to begin to think about them is enough to have that kind of reaction
In 2013 when tapering was announced by the then chair Bernanke US 10 year yields.
The takeaway
So with any surprise taper moves from the Fed the trade is buy USDJPY sell gold. The market is sensitive to tapering and the moves are likely to be accented.
Iran is readying a hike in its oil exports to “maximum capacity” within months
EnergyIntel website have the report. Citing two unnamed sources for the news.
The background being positive talks in Vienna with the US which could remove sanctions.
expectation of a deal next week
- sanctions to be lifted then in 2 to 3 months time
- Iran ready to boost exports
- ready to pump & export at maximum capacity, regardless of this does to price
- as much as 2 million barrels per day of Iranian crude returning to the market
Those above bullet points are pretty much what the oil market has expected anyway. Oil has dropped in past days on this.
Moderna reportedly considering to produce COVID-19 vaccine in Asia
Nikkei reports on the matter
The report cites an interview with Moderna CO, Stephane Bancel, as to saying that “we’re having discussions n several countries in Asia, including Japan” on efforts to produce the COVID-19 vaccine in the region.
Well, if this comes to fruition, then it could be a big boost to many Asian countries which are still struggling to get the pace of vaccinations up at the moment.
US Gulf of Mexico being watched over the weekend re hurricane developments
A heads up from the US National Hurricane Center:
We are now monitoring two disturbances for potential development over the next 2 days.
- 1: A low ENE of Bermuda
- and 2: An area of showers and thunderstorms over the NW Gulf of Mexico.
At this stage watching, something to be on the alert for at the Sunday evening US futures open perhaps.
China tabloid takes the knife to Bitcoin now … “free fall”
If you really need to read the piece, here is the link. Friday funny.
Deutsche Bank jumps on the BTC-bashing bandwagon – says its value is based on wishful thinking
DB:
- Those few words caused bitcoin’s value to plummet from nearly $60,000 in the days before to below $48,000
- on Tuesday, the PBoC reiterated that it would ban digital tokens as a means of payment, thus causing Bitcoin to plunge just above $30,000 at one point
DB then argues that
- the real debate is whether rising valuations alone can be reason enough for bitcoin to evolve into an asset class, or whether its illiquidity is an obstacle
- the value of bitcoin is entirely based on wishful thinking
Hmmmm. DB not mentioning other cryptos now competing with BTC, other cryptos with higher utility (can be used for reliably for payments etc., see this here: Bitcoin crumbles after Elon Musk bails. Why it may never recover).
US Indices close higher with the Nasdaq leading the charge
Nasdaq and S&P still remains lower on the month
The major US indices are closing higher with the NASDAQ leading the charge.
- All three major indices snapped three days losing streaks
- The Dow and S&P are on track for a weekly loss
- NASDAQ is higher for the week and looking to close higher for the first time in five weeks
- the NASDAQ is less than 5% below its all-time high
- The S&P is around 2% away from its all-time high
The final numbers are showing:
- S&P index up 43.47 points or 1.06% at 4159.16
- Nasdaq up 236 points or 1.77% at 13535.74
- Dow up 187.84 points or 0.55% at 34083.88
Some winners today include:
- Viacom CBS, +4.61%
- zoom, +4.59%
- Tesla, +4.09%
- Lam research, +4.07%
- Nvidia, +3.87%
- FireEye, +3.67%
- Beyond Meat, +3.66%
- twitter, +3.42%
- Intuit, +3.32%
- First Solar, +3.23%
- Ford, +3.06%
Some losers include:
- Bed Bath & Beyond, -3.89%
- DoorDash, -2.28%
- Tencent, -2.18%
- Delta Airlines, -1.58%
- Airbnb, -1.56%
- Chewy, -1.42%
- United Airlines, -1.24%
- PNC, -1.01%
- Wells Fargo, -0.95%
- Caterpillar, -0.8%
In the Dow 30, the top 5 leaders include:
- Apple, +2.10%
- Boeing, +1.45%
- Microsoft, +1.39%
- Amgen, +1.29%
- Walt Disney, +1.26%
The top 5 losers include:
- Caterpillar, -0.8%
- UnitedHealth, -0.24%
- Verion, 10.23 percent
- Bank of America, -0.21%
- JPMorgan, -0.17%
Thought ForA Day
What’s the timeline for the Fed to signal a taper and then deliver it?
What’s a realistic timeline?
Yesterday we got an example of how preoccupied the market is with Federal Reserve tapering. It was hardly a whisper of tapering:
“A number of participants suggested that if the economy continued to make rapid progress toward the Committee’s goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases”
Yet that sent a major shudder through markets with the US dollar climbing 30-40 pips, bond yields rising 4 bps and stocks falling. All that has reversed with market participants wisely concluding that nothing has changed, but it illustrates the tension around the Fed.
With that, it’s important to have a reasonable idea of what markets are expecting for a Fed taper.
The spot on the calendar that everyone has circled is the Jackson Hole Fed symposium. There’s no date released for it yet but it’s usually in the last two weeks of August and has been a favorite place of Fed officials to signal policy changes.
That timeline would give the Fed three more employment reports to digest. We’d need to see 500K jobs on average at the very least to get tapering in play, regardless of what happens with inflation.
I expect we’ll see more jobs so it will be on the table. But don’t expect the Fed to signal imminent tapering at Jackson Hole. A realistic timeline is that Powell signals they will start discussions there. Then we’ll get a formal hint in the September 16 FOMC decision. Then they’ll announce a taper on Nov 5 or Dec 16, which may not actually begin until January. Baring a surprise, it will be many months of tapering before rate hikes are firmly on the table.
That’s an extensive lead time and is what the market is expecting. It’s a reminder why dip buyers stepped in after yesterday’s brief freak out. Even a 2-3 month shift to this timeline isn’t particularly material; cheap money isn’t going away any time soon.