Poll results – Rally in global stocks nearly over, further gains will be limited, correction likely by year-end

Reuters polled equity market analysts and that headline above is the summary:

In very brief summary:
  • The spread of the Delta variant of the coronavirus and the U.S. Federal Reserve’s pending plans to taper its asset purchases are likely to leave equity markets exposed to turbulence over the coming months.
  • positive earnings season catalyst now behind us
  • 66 of 107 analysts said a correction in global equity markets by end-year was likely. The remaining 41 said unlikely.
Reuters have published a long piece, with a few anecdotal remarks that you might find of further interest, here is the link for plenty more.
Reuters polled equity market analysts and that headline above is the summary:

Federal Reserve FOMC minutes (June meeting) are published Wednesday 7 July 2021

Minutes to the June 15-16 meeting are due at 1800 GMT.

At the meeting (in a very brief summary)
  • members moved forward expectations for rate hikes
  • talked about tapering asset purchasing
The minutes will be scoured for further indications around timing of tapering QE, also risks to the economic outlook that may delay tapering (and on the flip side, what may shift it forward).
The buying of USTs (lower yields) may be indicative that the bond market is seeing risks of having hit ‘peak growth’, or that inflation is indeed transitory (these are two possibilities for the bond market bid amongst countless other explanations out there). Perhaps the minutes will shed more light on what the Federal Open Market Committee is thinking.

Here’s what it’ll take for gold (and silver) to climb to new highs ($2100, $30)

  • Real rates are now rising along with nominal yields due to stimulus optimism and risk appetite, with the USD also off its lows. 
  • Given that the US economy will continue to positively respond to an additional trillion dollars worth of fiscal stimulus and continued Fed measures, it is quite likely that rates and the dollar may see some better days into 2020
  • This, along with profit-taking by the very active retail investors and COMEX margin increases should see gold consolidate lower.
  • Before … new highs ($2,100+, $30+), there will need to be confirmation that the Fed will indeed suppress yields, consider average inflation targeting and there are signs that inflation may move higher
  • At the same time, markets will want to see if monetization of debt is in the cards, before talk of these levels becoming sustained is credible. 
  • TD securities projects an average gold price of $2,100/oz in Q4-2021 and $30/oz silver price during the same period

Recap of the FOMC, “as expected” … but US Congress fiscal policy remains an unknown

Via CIBC Research on Wednesday’s FOMC policy statement.

“Today’s FOMC announcement unfolded largely as expected, with policymakers commenting that economic activity and employment remain well below where they stood prior to the pandemic, despite picking up somewhat in recent months. Indeed, the outlook has become increasingly uncertain since the last meeting on account of the surge in virus cases and the re-tightening of social distancing in many states, with the Fed noting that the path forward for the economy depends significantly on the virus which is expected to weigh heavily on activity in the near term. While the Fed stands ready to do more to support the recovery, as shown by the extension in several credit facilities beyond their initial deadlines, the fiscal support package being discussed by Congress remains an unknown” 

“As a result, they appear to have opted to wait for the September meeting, when the next set of forecasts are due, to provide more concrete forward guidance on future rate hikes by perhaps tying them to the outcome of a macro variable. Tomorrow’s Q2 GDP report will provide a starting point for assessing the scale of the output gap” 

US dollar catches an early bid on Fed day

USD/JPY pops

Short-term speculators are no-doubt short the US dollar so some position squaring early today into the FOMC decision make sense. We’re also closing in on month-end so flow driven trades are going to be a factor.
The Fed decision is at 1800 GMT with Powell 30 minutes later. I’ll be looking for commentary on the economy as the top market mover. If it’s negative, the Fed will have to offer more strong hints at easing to keep the equity babies bulls at bay.
Other economic data today is a mish-mash of second tier data including:
  • US trade balance (advance goods)
  • Wholesale inventories
  • Pending home sales
  • Weekly oil inventories.

BOJ’s Kuroda: Economic activity has gradually resumed

BOJ governor, Haruhiko Kuroda, begins his press conference

  • But Japanese economy remains in an extremely severe siituation
  • Pace of recovery to only be moderate
  • Inflation is likely to be negative for the time being
  • Future economic developments remain extremely unclear
  • Risks are tilted to the downside for prices, economic growth
  • BOJ won’t hesitate to ease further if needed
  • Will continue to support corporate financing, markets
Kuroda is still maintaining a more subdued take on the economic situation but that is hardly a surprise. The recent economic data from Japan have been rather poor and a possible virus resurgence only adds to more risks surrounding the outlook.
But Kuroda stands firm in assuring that the BOJ policies since March are having an impact, though I’m sure they pretty much lucked out on this one with the Fed and ECB doing most of the heavy lifting to appease financial risks in the market for the most part.

Powell set to speak to Congress

Powell will deliver part 1 of Humphrey Hawkins in the Senate

Powell will deliver part 1 of Humphrey Hawkins in the Senate
The Fed tends to be a punching bag when the economy is in bad shape or when they try something new. If I were a politician, I would certainly be trying to score points on a central bank buying junk bonds and calling a program delivering loans up to $300m as ‘Main Street’ lending.
But I don’t think the market cares. Powell has all the canned answers ready, saying that inflation is low and that the aim is to lower employment.
The criticism of the Fed chair last week was that he was too downcast. Perhaps he will try to correct that but I don’t think it’s warranted. The most-important thing for the market is that he reiterates that the FOMC will “act forcefully, proactively and aggressively.” I don’t see that changing.
One area that is a bit of a minefield is unwinding all the March programs. For instance, the stated goal of the corporate bond buying program is to restore market functioning and it’s set to expire in September. They’ve already achieved the goal — spreads are narrow. Will he start to move the goalposts?
The headlines will be out at the top of the hour and the Q&A will start 20-30 mins later.

The FOMC full statement for the June 2020 meeting

Fed keeps rates unchanged

Below is the full statement for the June 2020 meeting:

The Federal Reserve is committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals.

The coronavirus outbreak is causing tremendous human and economic hardship across the United States and around the world. The virus and the measures taken to protect public health have induced sharp declines in economic activity and a surge in job losses. Weaker demand and significantly lower oil prices are holding down consumer price inflation. Financial conditions have improved, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses.

The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term. In light of these developments, the Committee decided to maintain the target range for the federal funds rate at 0 to 1/4 percent. The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.

The Committee will continue to monitor the implications of incoming information for the economic outlook, including information related to public health, as well as global developments and muted inflation pressures, and will use its tools and act as appropriate to support the economy. In determining the timing and size of future adjustments to the stance of monetary policy, 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.

To support the flow of credit to households and businesses, over coming months the Federal Reserve will increase its holdings of Treasury securities and agency residential and commercial mortgage-backed securities at least at the current pace to sustain smooth market functioning, thereby fostering effective transmission of monetary policy to broader financial conditions. In addition, the Open Market Desk will continue to offer large-scale overnight and term repurchase agreement operations. The Committee will closely monitor developments and is prepared to adjust its plans as appropriate.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; Richard H. Clarida; Patrick Harker; Robert S. Kaplan; Neel Kashkari; Loretta J. Mester; and Randal K. Quarles.

Federal Reserve to buy Treasuries and MBS ‘at least at the current pace’

Highlights of the June 10, 2020 FOMC interest rate decision

  • Will increase holdings of bonds ‘over the coming months’ at least at the current pace to smooth markets
  • Buying will continue across curve
  • Dots pin rates at zero through 2022 but two dots show lift-off in 2022
  • Rates unchanged, as expected
  • Repeats pledge to use full range of tools to support US economy
  • Repeats that health crisis will weigh heavily on activity and poses considerable risks to the outlook over medium-term
  • Financial conditions have improved, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses.
  • Prior statement
  • Powell will hold a press conference at the bottom of the hour
The Fed has tapered to $4B/day from a high of $300B/day and there was some expectations they would continue to taper but they are going to keep QE here, which is around $80B per month.
I don’t see anything negative for the market here. The dots are zeroed out and the Fed is going to keep the printer running.
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