U.S. Federal Reserve to Hike Rates In June?

Fed Leaves Rates Unchanged & June Open For Hike

URL: http://www.businessoffinance.com/sni...-open-for-hike

Here are some bulletin headlines from the April FOMC event immediately after the statement's release:

Following our pre-FOMC primer on what to expect during today's April Fed event, the Fed has once again left the Federal Funds target rate unchanged at 0.25% - 0.50%. We managed to cover the entire event live on our Facebook page, and will therefore be posting content from that venue along with some supplementary comments.

By removing emphasis on negative external risks (i.e. volatility in global financial markets, China, and oil prices) and placing new weight on monitoring global developments, the Fed is essentially hinting that while risks have indeed subsided, FOMC members will nonetheless be sensitive to negative surprises across the pond and in Asia.
This essentially shifts some of the attention away from the domestic economy, which the Fed has acknowledged to be on the slow path of growth, and shines more light on other factors, which may or may not include oil prices, geopolitical stability (or lack thereoff), monetary policies of other major central banks, and the like.

This seems to be a sleek trick from the Fed's sleeve; allowing it to maintain its "hawkishly-dovish" posture whilst awaiting more positive developments domestically. Developments such as the thawing of disinflationary headwinds brought from low oil prices, which are of course lagging in nature, and (secular?) weakness in the manufacturing industry.
The market now expects at least a 25% likelihood that the Fed will hike rates during their 15 June meeting, once again back loading the path of tightening.

1. FED REMOVES REFERENCE TO GLOBAL EVENTS POSING RISKS TO OUTLOOK
2. FED SAYS LABOR MARKET IMPROVED EVEN AMID SIGNS OF SLOWER GROWTH
3. FED REPEATS ECONOMIC SITUATION WARRANTS ONLY GRADUAL RATE HIKES
4. FED SAYS HOUSING SECTOR IMPROVED FURTHER SINCE START OF YEAR
5. FED TO WATCH INFLATION, GLOBAL, FINANCIAL DEVELOPMENTS CLOSELY
6. FED: INFLATION BELOW TARGET DUE TO CHEAPER NON-ENERGY IMPORTS
7. FED SEES MODERATE GROWTH, STRENGTHENING LABOR MARKET AHEAD
8. FED REPEATS ECONOMIC SITUATION WARRANTS ONLY GRADUAL RATE HIKES

READ MORE HERE: http://www.businessoffinance.com/sni...-open-for-hike

Meanwhile, still making nice profits off our trading...

This entry is a follow up to our original Short USDNOK Pays Off Well piece published 9 April 2016. Since then, we have closed out all our trades on USDNOK and have booked a total of 5,370 pips of realized profits. This translates into roughly +6.28% of unlevered returns. This piece is therefore to update readers and followers as well as to provide the last concluding bits of our thoughts.

http://www.businessoffinance.com/tra...-win-5300-pips

Post April NFP...No More Rate Hikes?

http://www.businessoffinance.com/sni...-open-for-hike

Here are some bulletin headlines from the April FOMC event immediately after the statement's release:

1. FED REMOVES REFERENCE TO GLOBAL EVENTS POSING RISKS TO OUTLOOK
2. FED SAYS LABOR MARKET IMPROVED EVEN AMID SIGNS OF SLOWER GROWTH
3. FED REPEATS ECONOMIC SITUATION WARRANTS ONLY GRADUAL RATE HIKES
4. FED SAYS HOUSING SECTOR IMPROVED FURTHER SINCE START OF YEAR
5. FED TO WATCH INFLATION, GLOBAL, FINANCIAL DEVELOPMENTS CLOSELY
6. FED: INFLATION BELOW TARGET DUE TO CHEAPER NON-ENERGY IMPORTS
7. FED SEES MODERATE GROWTH, STRENGTHENING LABOR MARKET AHEAD
8. FED REPEATS ECONOMIC SITUATION WARRANTS ONLY GRADUAL RATE HIKES

This is precisely what we talked about in out last snippet, that the Fed will rather err on the side of caution than to tighten prematurely and risk having to reverse its path of policy actions — which would not only deal great harm to both the actual economy and global financial markets, but also eviscerate the last remaining bits of credibility the Washington-based entity has left.

http://static1.squarespace.com/stati...5986/image.jpg
"The reaction across stocks, USD, gold, and U.S. treasuries post a quasi-dovish FOMC, or what we call a "hawkishly-dovish" statement.

Equities are higher post event as risk flows turn positive after the initial knee jerk lower. SPX is attacking the week's highs as we go to print.

The U.S. dollar is weaker post event after initially ramping, again on a knee jerk. It seems market participants view the April statement as more bearish the dollar than bullish, despite FOMC having removed the emphasis on negative global risks, and reasserting that the labor market is on track to reaching full employment.
Bonds are higher (yields lower) post event, and are perhaps the single most dire
ctional asset class here other than equities. Markets clearly view the statement as dovish — Bullish for equites and bonds, bearish for dollar.
And lastly, Gold remains confused after dumping on a knee jerk, then rallying to unchanged, then dumping again before somewhat stabilizing slightly lower pre-FOMC. We note that silver is trading much stronger than gold is."

Business Of Finance on Facebook, 28 April 2016

We made money post-FOMC, as did our clients. Pretty good week so far. As usual, FOMC was a bug mover across all asset classes, including equities and FX. A June rate hike seems probable now, despite the U.S. economy not performing exactly spectacularly. What immediate effects this had on the markets are shown below:

The aftermath post April's FOMC minutes: Stocks down (risk off), USD strength (as we forewarned), yield curve flatter (rate hike discount), gold down (again, as we forewarned).

Most importantly, June rate hike odds per the FF futures market is currently above 30%, from lows of 4% immediately after 28 April's FOMC statement.

Still, too early to say "told ya so", more waiting. Portfolio long USD exposure doing well.

The BIGGEST Event Risks In June

We have been away from this thread awhile now, busy with new material, content and of course, trading signals.

So far, all so good. The first half of 2016 has sailed on by, and the markets remain generally trendless, yet dangerously volatile. To combat this, we have had to switch strategies to ensure that we are not exposed on any particular trade for too long. Long-term trades are simply not worth the drawdown in markets like this.

Near the end of the month, the UK will decide whether she remains a part of the European Union (UK). In other words, Brexit, or Bremain?

This is just one of many crucial, key market events that will take place in June. Given that this month concludes the first half of the year, we thought it'd be fitting we bring you some of the biggest event risks June will bring.

Get ready and mark your calendars.

From the article:

'The biggest risks in June (in our opinion) will be the EU referendum by the UK in the later part of the month, the June ECB monetary policy decision and press conference, the June FOMC statement and interest rate decision, and lastly the BoJ's monetary policy decision.'

We do the analysis and commentary for you, all in today's Daily Grail.
The Biggest Event Risks In June

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Image captions:

New opinion poll results surfaced in Britain Tuesday showing a 47% vote for leaving the EU (Brexit), and a 44% vote for remaining in the EU (Bremain). The news sent GBP crashing 130 pips against the USD and shockwaves across risk markets will global indices all down on the day and for the week. While such poll results are questionable, the consensus is that the Brexit vote is quickly catching up to the conservative.

Regardless of results, the UK referendum is surely one of (if not the most) the nuggets event risks in June and markets will likely continue to trade wildly on every ebb on this event."

Business Of Finance on Facebook, 1 June 2016


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Caption 2:

"The best and worst performing global financial assets in May and YTD (in both local currency and USD terms) as analyzed by DB:

May was a month of decoupling: oil decoupled from the dollar, and global risk decoupled from the once again sharply devaluing Yuan, but most notably May was a month where Fed rate hike expectations repriced midway through the month.
Markets largely took the move in their stride and reversed a difficult start to the month. Having said that we saw evidence of the repricing with dollar strength and EM/Gold weakness a theme. In fact for equity markets in particular the old adage sell in May and go away was looking relatively apt for the first week or so into the month before sentiment turned positive, seemingly supported by a combination of increasing comfort that the market can accommodate Fed tightening, higher oil prices, positive news from Greece and another decent performance for European Banks.

Looking at the winners and losers for the month one thing which stands out is the relative performance between local currency performance and US Dollar hedged performance during the month such was the strength of the Greenback. That was certainly the case with equity markets where in Europe in particular markets were generally up between 1-3% in local terms with banks in the middle of that range. With the Euro weakening 3% during the month however, on a USD return basis we see most European equity markets finish flat to slightly negative. It was a similar story in credit markets too where following two decent months of performance (on the back of the ECB CSPP announcement) May saw Euro indices eking out more modest gains of less than a percent in local terms in May with financials the relative outperformer. Looking at these in USD terms though results in most European credit indices down 2-3%. Performance was more impressive then for the S&P 500 (+2%) and higher beta US credit indices (+0.5%).

Further afield the top of our May leaderboard is headed by the performance for Greek equities (+11% local, +8% in USD terms) which rallied following the latest positive developments with regards to the bailout. Thereafter its WTI (+7%) and Brent (+5%) which rank second and third, extending what has essentially being an ongoing rally since mid-February now. Corn (+6%) also had a strong month. Developed sovereign bond markets sit in the middle of the pack although with concerns about Brexit starting to abate, it was Gilts (+2% local, +1% in USD terms) which outperformed. Finally the bottom of the leaderboard sees Brazilian equities (-10% local, -15% USD terms) prop up the rest as the political situation came to a head. Elsewhere Gold (-6%), Silver (-10%) and Copper (-8%) all suffered with the Fed repricing. EM equities and bonds (-4% and -5% respectively) also succumbed for the same reason.

Taking a look at year-to-date performance, its still commodity markets which are dominating the top of the leaderboard. Indeed in local currency terms the top five has WTI (+33%), Brent (+19%), Silver (+15%), Gold (+15%) and Corn (+13%) hogging the limelight, although if we flip to USD terms then Brazilian equities (+23%) and Russian equities (+19%) jump to second and fourth respectively. The impressive rally for the Yen (+9%) is still a standout while the overall performance for credit continues to be strong. Indeed in local currency terms we see US indices up between 3-7% this year, led by HY while European indices are up between 2-4%. Theres a familiar look to the bottom of the leaderboard with the Shanghai Comp (-17% local, -19% USD terms) the biggest outlier. Italian equities (-14% local, -12% USD terms) and European banks (-14% local, -12% USD terms) are still down double digits although have bounced back from how they ended Q1."

Business Of Finance on Facebook, 1 June 2016

Largest NFP Miss Ever Kills June Fed Hike

When we first saw the 38,000 print, we thought it was an error with our news feed. But no, the U.S. economy added only 38,000 non-farm jobs in May, the lowest since September 2010, and the biggest miss on record. It's really hard to overstate how morbidly bad May's payrolls were. It is, however, commensurately easy to kiss a June rate hike by the Fed a sweet goodbye.

Everyone was shocked. We were definitely shell shocked, because we couldn't believe just how bad the numbers were. Neither could the markets.

Flash crashes and surges sprouted the instant the first HFT algos recognized that it was really an epic disaster. Yes, here we are 5 days late to reporting on this monumental event; but you see, we have more to bring to the table, now that 3 trading days have already passed for the dust to settle.

READ ALL HERE:
http://www.businessoffinance.com/sni...-june-fed-hike

Fed & BoJ To Troll Markets This Week

There's never been a central bank more thuggish than the Fed. First, it delayed hiking rates by more than 11 months, only doing so once in December by a tiny 25bp. Remember the vicious cycle of "promising to hike, only to scare markets into a drawdown, refusing to hike, therefore talking markets into a rally" we have been taught by the Fed to abide by?

Yup, that's exactly what Yellen and company have really been enjoying doing for the last 6 months and counting, showing no intentions of quitting this addictive habit.

We've been documenting this since the nonsense started many months back. With each passing FOMC meeting (already 4 have passed this year), and with every twist and turn of the macro economic grade book, the markets have rallied and tanked in a vomit-including clusterf***, in the process trolling traders and screwing investors' portfolios.

READ MORE: http://www.businessoffinance.com/sni...kets-this-week

Cable (GBPUSD) has now rallied from last Thursday's lows of 1.40 to the current 1.44 a few short hours after the FX markets opened for trading Monday. The 400+ pip rally in GBPUSD (along with other GBP crosses) was clearly sparked by the killing of UK MP Jo Cox, a pro-Brexit advocate.

As campaigning was temporarily suspended (still is to date), selling in GBP seemed to exhaust itself as shorts scrambled to cover as upside momentum exploded. We might have seen a short squeeze, as we noted last week that both sentiment and market positioning in GBP futures were at extremely levels, while prices were approaching key technical support. It's fair to say that quite some number of traders shorted GBP at or around 1.40, expecting a breakdown on what in retrospect seems to be climactic selling.

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