Busy week next week highlighted by rate announcements and employment reports

RBA and RBNZ to announce rate decisions

It is busy week next week with rate announcements from the Reserve Bank of Australia and also the Reserve Bank of New Zealand. It is also employment week for both Canada and the US.  China is on holiday Monday to Thursday. Australia will be off on Monday.
Monday, October 4
  • OPEC+ meeting all day
  • Spain’s unemployment change, 3 AM ET/ 0700 GMT
Tuesday, October 5
  • Reserve Bank of Australia rate decision, 11:30 PM ET Monday/0330 GMT.  Rate expected to remain steady at 0.10%
  • US ISM services PMI for September.  Estimate 59.9 versus 61.7 last month.  10 AM ET/1400 GMT
  • ECB’s Lagarde speaks, 11 AM ET/1500 GMT
  • FOMC Quarles speaks, 1:15 PM ET/1715 GMT
Wednesday, October 6
  • RBNZ rate decision, expected 0.25% hike to 0.5% from 0.25%.  9 PM ET/0100 GMT
  • ADP nonfarm employment change, estimate 455K versus 374K last month. 8:15 AM ET/1215 GMT
  • US crude oil inventories, 10:30 AM ET
Thursday, October 7
  • US unemployment claims. Estimate 350K versus 362K last week.  8:30 AM ET/1230 GMT
  • Canada Ivey PMI. Estimate 60.3 versus 66.0 last month. 10 AM ET/1400 GMT
  • BOC Macklem schedule to speak.  12 PM ET/1600 GMT
Friday, October 8
  • RBA financial stability review, 8:30 PM ET/0030 GMT
  • Canada employment change.  Estimate 61.2K vs 90.2 last month.  8:30 AM ET/1230 GMT
  • Canada unemployment rate.  Estimate 6.9% versus 7.1% last month
  • US nonfarm payroll. Estimate 490K versus 235K last month.  8:30 AM ET/1230 GMT
  • US unemployment rate.  Estimate 5.1% versus 5.2% last month. 8:30 AM ET/1230 GMT
  • US average hourly earnings, estimate 0.4% versus 0.6% last month.  8:30 AM ET/1230 GMT

ICYMI – Norway’s central bank rate hike Thursday

Norges Bank Norway’s central bank raised its benchmark interest rate on Thursday, raised the sight deposit rate to 0.25%

  • from zero
  • the hike was as expected
The Bank said it expect to do the same again in December, another hike
  • and three more hikes by the end of 2022 (to 1.25%) had become more likely.
The governor of the Norwegian central bank spoke at a press conference after:
  • There is a strong recovery in the Norwegian economy
  • It’s time to start a gradual normalisation of the policy rate

Brazil’s central bank 1% rate hike, as expected

Banco Central do Brasil​ hikes its benchmark interest rate to 6.25% from 5.25%.

Headlines via Reuters from the statement (bolding mine):


  • decision was unanimous
  • sees rate hike of the same magnitude at next meeting
  • in the current phase of rate hike cycle, this pace of adjustments is best to guarantee the anchoring of inflation expectations
  • sees robust economic recovery in the second half of year
  • baseline scenario and balance of risks indicate that an interest rate hike cycle should advance into contractionary territory
  • elevated fiscal risk creates an upward asymmetry in the balance of inflation risks
  •  the current pace of rate hikes will allow the committee to obtain more information regarding the state of the economy and the persistence of shocks
  • price increases for industrial goods have not subsided and should remain a pressure in the short run.
  •  new round of market discussion regarding inflationary risks in advanced economies could result in a challenging environment for emerging economies

The bond market wakes up. US 10-year yields hit the highest since Aug 13

Taper back on the table?

Taper back on the table?
There’s a sweet spot for many markets where delta pushed back the taper but the economy remains solid and rates stay low.
Of course, that’s an impossible paradigm to hold. Yes, Powell probably won’t signal a taper this week but beyond that either delta will meaningfully hurt the global economy or delta will fade and the case for tapering will return.
At the moment, the bond market appears to be hinting at a fade in delta and rising odds of a September taper. Overall, I suspect this is more about delta and confidence this round of cases will fade quickly but I see the Fed argument too.
From where I stand, Powell’s best course of action is to preserve some optionality into the Sept meeting but emphasize that the Fed will do everything it can to support the recovery. Ultimately, a November taper hint and December announcement makes the most sense.
Despite the uptick in rates, the bond market certainly isn’t seeing any inflation.

The full statement from the July 2021 FOMC meeting

FOMC statement from the July 28, 2021 meeting

Federal Reserve issues FOMC statement

For release at 2:00 p.m. EDT

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.

With progress on vaccinations and strong policy support, indicators of economic activity and employment have continued to strengthen. The sectors most adversely affected by the pandemic have shown improvement but have not fully recovered. Inflation has risen, largely reflecting transitory factors. Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses.

The path of the economy continues to depend on the course of the virus. Progress on vaccinations will likely continue to reduce the effects of the public health crisis on the economy, but risks to the economic outlook remain.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. With inflation having run persistently below this longer-run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer‑term inflation expectations remain well anchored at 2 percent. The Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved. The Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time. Last December, the Committee indicated that it would continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgage‑backed securities by at least $40 billion per month until substantial further progress has been made toward its maximum employment and price stability goals. Since then, the economy has made progress toward these goals, and the Committee will continue to assess progress in coming meetings. These asset purchases help foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses.

In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Thomas I. Barkin; Raphael W. Bostic; Michelle W. Bowman; Lael Brainard; Richard H. Clarida; Mary C. Daly; Charles L. Evans; Randal K. Quarles; and Christopher J. Waller.

Implementation Note issued July 28, 2021

Goldman Sachs is worried about the prospects for ‘mega cap tech’ stocks – 3 big risks

Via a Goldman Sachs analyst research note ICYMI (on Friday) covering huge technology shares like Facebook, Apple, Amazon, Microsoft and Alphabet (Google).

GS nominate risk #1 as higher taxes, commenting on plans from the Biden administration for higher corporate and capital gains tax rates:
  • proposed corporate tax rate hiked to 28% (note that Biden has indicated a 25% compromise rate)
  • FAAMG stocks have appreciated by $5 trillion during the last 5 years, accounting for 29% of the S&P 500 market cap increase during that time” … and thus a drop in these stocks will have an outsized impact on index values
#2 is the ‘higher interest rates’ usual suspect:
  • low rates have been a key support for valuations for over ten years now
  • the time of near zero rates could be approaching an end though
  • “All five FAAMG stocks …  are especially sensitive to moves in long-term interest rates
#3 is increased regulation … GS go as far as to say “Looking forward, the greatest fundamental risk to the continued market leadership of the five largest companies appears to be the potential intervention of regulators
  • … legal battles and investigations over their market power and competitive practices ranging from commercial litigation to DoJ and FTC antitrust lawsuits to Congressional probes”
GS do note on #3 though that Google has soared since the launch of the DOJ investigation (in October 2020 … price from circa $105 to circa $135).
Via a Goldman Sachs analyst research note ICYMI (on Friday) covering huge technology shares like Facebook, Apple, Amazon, Microsoft and Alphabet (Google).

Fed’s Barkin says the dot plot is not FOMC policy

Barkin is the president and CEO of the Federal Reserve Bank of Richmond, he has some comments crossing on the wires.

Speaking in a Bloomberg TV interview.


  • you want yields to respond to what happening in the economy
  • yields reflecting good news on vaccines, fiscal aid
  • really hopeful that we’re at the back end of pandemic
  • the Fed’s interest-rate dot plot is not Federal Open Market Committee policy
  • Fed has tools to handle unwanted inflation
  • inflation is not a one-year phenomenon, it’s multi-year
  • expect to see price pressures in 2021
  • expect strong demand, met by some supply-chain issues
  • the US economy will have strong spring and summer
Re that headline I put in the, headline …. the dot plot is part of the Fed’s forward guidance. Barkin’s comments are in line with other comments from Fed officials, they are toeing the party line since Chair Powell laid down the law and told them all to shut up about tapering a month or so back.


Barkin is the president and CEO of the Federal Reserve Bank of Richmond, he has some comments crossing on the wires. 

Brazil’s central bank hiked its benchmark rate more than was expected

A 75bp hike vs. the 50 that was widely expected from the Banco Central do Brasil.

  • BCB add that they expect to hike another 75bps at the following meeting
  • says it has initiated a partial normalisation process, reducing its extraordinary degree of monetary stimulus
Despite with the FOMC and Powell tell us I think perhaps the BCB is providing a sneak preview of what is to come from the Fed prior to 2024. We’ll see.

Overnight US Market : The stock rotation continues out of high-tech and into cyclicals

Higher yields remain the catalyst

The longs in the technology stocks continue to get hammered and the rotation into the cyclical continues as fears of interest rates have traders repricing the high flyers of 2020.

The final numbers are showing:
  • S&P index -20.72 points or -0.54% at 3821.23
  • NASDAQ index -310.98 points or -2.41% at 12609.16
  • Dow industrial average rose 306.21 points or +0.97% at 31802.51
The NASDAQ index closed below its 100 day moving average for the 1st time since October 30.
Some of the oversized decliners today included:
  • Doordash -11.92%
  • Snowflake, -10.74%
  • Chewy, -8.01%
  • Zoom, -7.91%
  • Nio, -7.66%
  • Nvidia, -6.99%
  • Square, -6.74%
  • Broadcom, -6.57%
  • Palantir, -5.91%
  • Tesla, -5.86%
On the positive side, some of the Reddit meme stocks were in the big gainers:
  • Express, +62.6%
  • Gamestop, +40.1%
  • Koss, +26.79%
  • AMC, +15.52%
  • Bed Bath and Beyond, +10.32%
Airlines also rose sharply:
  • United airlines, +7.03%
  • Southwest Airlines, +6.41%
  • American Airlines, +4.94%
  • Delta Air Lines, +3.61%
Big cap high flying names of 2020 had a tough time of it today as well:
  • Facebook -3.35%
  • Amazon -1.58%
  • Apple, -4.13%
  • Netflix, -4.48%
  • Microsoft -1.79%
  • Alphabet -4.3%
Other winners included:
  • Walt Disney, +6.27%
  • Whirlpool, +3.46%
  • Ford, +3.10%
  • MasterCard, +2.9%
  • Citigroup, +2.82%
  • Cisco Systems, +2.79%
  • Exxon, +2.39%
  • General Motors, +2.29%
  • Home Depot, +2.16%

FOMC responses coming in – “no surprises” #AnirudhSethi

A summary of the main point Lloyds make about Wednesday’s Federal Open Market Committee

  • policy update contained no surprises.
  • left interest rates and its asset purchase target unchanged
  •  The Fed continues to promise that it stands ready to offer more support to the economy if warranted but there seems to be growing confidence that more action may not be needed. Nevertheless. any tightenng in monetary policy is still probably a very long way away and markets don’t expect an interest rate hike until 2024. 
  • Recent US economic data has actually been mixed
  • the signs are that the vaccine rollout is increasing the Fed’s confidence that economic conditions will improve significantly later this year
  • Hopes of further fiscal stimulus from the Biden Administration probably have provided a further boost
On the ‘tapering’ of QE question, which some officials at the Fed have indicated may commence in 2021, Lloyds remind that Powell has been quick to “stamp on this idea” and reiterated the point again at his presser.
A summary of the main point Lloyds make about Wednesday's Federal Open Market Committee 
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