Is there an incoming policy error by the Federal Reserve? $DXY #FederalReserve #Dollar #Policy #Fed
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Over the past several weeks, we have seen significant Central Bank actions globally. This reflects a market flush with cash and a desire by the Federal Reserve to hold short-term rates positive. 2/
Mid-June 2021 FOMC Summary:
1. Unchanged rate and QE policy
2. Reverse Repo rate increase to 5bps
3. IOER increase to 15 bps
4. Dot plot showing rate hikes sooner than expected
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1. Unchanged rate and QE policy
2. Reverse Repo rate increase to 5bps
3. IOER increase to 15 bps
4. Dot plot showing rate hikes sooner than expected
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The Federal Reserve tightened in some respects (reverse repo and IOER) and is showing some movement toward raising the Fed Funds rate earlier than expected.
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The key reason here is to keep short-term rates from going below the zero bound with so much cash entering the banking system via the US Treasury General account balance drawdown #ZIRP #NegativeRates
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The market implications of this are:
1. EM Central Banks raising rates #CentralBanks
2. Yield curve flattening #YieldCurve
3. Stronger dollar $DXY
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1. EM Central Banks raising rates #CentralBanks
2. Yield curve flattening #YieldCurve
3. Stronger dollar $DXY
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EM Central Bank Policy Changes:
1. Mexico Overnight Rate to 4.25% from 4.0%
2. Brazil target rate to 4.25% from 3.5%
3. Russia Key Policy rate to 5.5% from 5.00%
4. Czech Republic Repo Rate to 0.5% from 0.25%
#rates #bonds #MonetaryPolicy
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1. Mexico Overnight Rate to 4.25% from 4.0%
2. Brazil target rate to 4.25% from 3.5%
3. Russia Key Policy rate to 5.5% from 5.00%
4. Czech Republic Repo Rate to 0.5% from 0.25%
#rates #bonds #MonetaryPolicy
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$DXY showing strengthened
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This is also in relation to the #ECB and the $EUR. (The $Euro is 58% of the DXY).
wsj.com/articles/ecb-k…
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wsj.com/articles/ecb-k…
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The #Fed doesn't signal to the market unless it has plans to do what it is signaling in the future. So what are the go-forward expectations for the market and monetary policy?
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1) Watch out for the Fed meeting in Jackson Hole in August 2021.
"I myself would like to see tapering over before we consider raising rates; therefore...to raise rates in late ’22 or early ’23, ... tapering [has] to done by the end of next year."
— Waller, Fed Governor, 6/29
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"I myself would like to see tapering over before we consider raising rates; therefore...to raise rates in late ’22 or early ’23, ... tapering [has] to done by the end of next year."
— Waller, Fed Governor, 6/29
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2) As the Federal Reserve starts to bring up the idea of tapering, expect to see the yield curve flatten, reflecting slower growth driven by a hawkish #Fed in a extremely indebted #economy
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3) Volatility with the $DXY
Medium-term #Bullish, Long-term #bearish .
The reasons for this stance in $DXY is the following:
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Medium-term #Bullish, Long-term #bearish .
The reasons for this stance in $DXY is the following:
https://twitter.com/Derman_Capital/status/1410365696530391043?s=20
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Current View
1. Hawkish #Fed & Flattening #YieldCurve
2. Rising $DXY over the coming months
3. Fed policy change at Jackson Hole
4. Asset prices drop over the coming month
5. #Fed switches stance to dovishness
6. $DXY continues secular downtrend
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1. Hawkish #Fed & Flattening #YieldCurve
2. Rising $DXY over the coming months
3. Fed policy change at Jackson Hole
4. Asset prices drop over the coming month
5. #Fed switches stance to dovishness
6. $DXY continues secular downtrend
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What to Watch:
1. A continuing confirmation that the Fed will be hawkish
2. Yield curve continuing to flatten up until Jackson Hole
3. $DXY (especially on a technical level)
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1. A continuing confirmation that the Fed will be hawkish
2. Yield curve continuing to flatten up until Jackson Hole
3. $DXY (especially on a technical level)
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