Powell comments

BN 07/31 18:42 *POWELL: GLOBAL WEAKNESS, TRADE TENSIONS AFFECTING U.S. ECONOMY
BN 07/31 18:41 *POWELL: WILL MONITOR EVOLUTION OF TRADE UNCERTAINTY, INFLATION
BN 07/31 18:41 *POWELL: THE ISSUES ARE DOWNSIDE RISKS, INFLATION SHORTFALL
BN 07/31 18:41 *POWELL: U.S. ECONOMY HAS SHOWN RESILIENCE IN RECENT WEEKS
BN 07/31 18:40 *POWELL NOTES CONFIDENCE HAS MOVED BACK UP RECENTLY
BN 07/31 18:39 *POWELL: CUT IS DESIGNED TO KEEP OUTLOOK FAVORABLE AMID RISKS
BN 07/31 18:38 *POWELL: WEAK GLOBAL GROWTH, FACTORIES POSE RISKS TO U.S.
BN 07/31 18:38 *POWELL: ECONOMY AS CLOSE TO GOALS AS IT’S BEEN IN LONG TIME
BN 07/31 18:37 *POWELL: WE ARE THINKING OF IT AS MID-CYCLE ADJUSTMENT TO POLICY
BN 07/31 18:37 *POWELL: ECONOMY PERFORMED AS EXPECTED WITH MORE ACCOMMODATION
BN 07/31 18:36 *POWELL: NEED TO LOOK AT FOMC’S ACTIONS SINCE START OF YEAR
BN 07/31 18:35 *POWELL: FOMC WILL ACT AS APPROPRIATE TO SUSTAIN EXPANSION
BN 07/31 18:35 *POWELL: GLOBAL DISINFLATIONARY PRESSURES PERSIST
BN 07/31 18:35 *POWELL: OTHER CENTRAL BANKS ARE EASING OR CONSIDERING IT
BN 07/31 18:34 *POWELL: TRADE POLICY TENSIONS HAVE EASED TO A SIMMER
BN 07/31 18:34 *POWELL CITES TWO STRAIGHT QUARTERS OF DECLINING MANUFACTURING
BN 07/31 18:33 *POWELL: 2Q GDP GROWTH WAS CLOSE TO EXPECTATIONS
BN 07/31 18:33 *POWELL: JOB GROWTH WAS STRONG IN JUNE, DATA SIGNAL STRENGTH
BN 07/31 18:33 *POWELL: LOWER NEUTRAL RATE REINFORCES CASE FOR LOWER RATE PATH
BN 07/31 18:32 *POWELL: IMPORTANT THAT STRONG JOB MARKET HELPS MORE LEFT BEHIND
BN 07/31 18:32 *POWELL: WAGES RISING, PARTICULARLY FOR LOWER-PAYING JOBS
BN 07/31 18:32 *POWELL: OVER 1H, ECONOMY GREW AT HEALTHY PACE
BN 07/31 18:31 *POWELL: RATE CUT AIMED AT BOOSTING INFLATION TOWARD GOAL
BN 07/31 18:31 *POWELL: RATE CUT AIMED AT INSURING AGAINST DOWNSIDE RISKS
BN 07/31 18:30 *POWELL: OUTLOOK FOR U.S. ECONOMY REMAINS FAVORABLE
BN 07/31 18:30 *FED CHAIRMAN POWELL BEGINS PRESS CONFERENCE IN WASHINGTON


7-31

According to Bespoke Investment Group, it has been 3,878 days since the Federal Open Market Committee last cut interest rates. That 10 ½-year streak is the second longest on record, behind only the 4,115 days with no such move in the 1950s. (Marketwatch)

   Market expects Fed to cut a quarter an insurance cut against an economic slowdown, a bigger outlier is no cut versus a 50 bps cut, in my opinion. Traders want to hear what is next is this a one a done move or is it the start of an easing cycle. The question then turn to where do we get this hint is it wording in the statement such as  “Fed will be patient while it monitors the economy” would indicate a one and done approach and the Short end of the curve would  not be a fan of this as 3  Cuts are priced for year end. If the Fed were to say we “are closely monitoring the economy” this could be taken as another cut is coming soon. Most experts believe that the press conference is where Powell will indicate one and done or Start of an easing cycle. Just remember 2-3 cuts are priced into market so any disappointment, repricing across yield curve will occur. Per Morgan Stanley net longs in Dollar index increased last week any bearish dollar move may have some legs, as long liquidation will provide some fuel. Watch The Fed statement for dissenters it is possible that you could see dissent in both directions one for larger rate cuts and one for rates unchanged. In addition, watch for an announcement ending balance sheet reduction, the fed is expected to end this QT, Quantitative tightening in September but they may do it today. One last Factoid from market watch and one that I agree with as the reason for a cut “To really think about why the Fed is cutting interest rates, consider that some $12 trillion of dollar-denominated debt is outside the U.S. The Bank for International Settlements on Wednesday pointed out that dollar credit to non-bank borrowers outside the U.S. grew more slowly than inside the U.S. for the third straight quarter. Much as it doesn’t like the label, the Fed is central bank to the world — and the world is struggling”

 Markets:

  The First of  3 China’s manufacturing PMI’s increased  .1%, Italian GDP came in at zero vs expectations of-.2  less bad =good. Oil bid after yesterday’s higher close as API data is bullish with larger than expected draws in oil and gasoline stocks. Most metals little changed but palladium +.9%.grains trading a touch heavy and European 10 year yield trending lower. Also Month End activity may show up near respected closes.

Calendar:

  • 7:30 Employment Cost index
  • 8:42 Chicago PMI

Risk On via Trump

Simple News headline saying Trump Has Spoken to president Xi recently and Spoos and Dow went bid,Oil already trending higher took out a bit of resistance ,the july 24th highs and away she goes. CL +2% brent +1.5% Cl/ Brent spreads trading higher as well ,Dollar was offered , Gold and Silver reached new highs. Wash, rinse ,repeat the same old stale headlines continue to result in a market reaction

China PMI tonight at 8:00 and Apple earnings at 3:30 provide some minor event risk

Bonds

Reasons for Treasury weakness
:

After the latest Budget, deal/debt ceiling fix US treasury announced an increase in borrowing estimates for the third quarter, up considerably versus the previous expectations (BBG). Bloomberg story goes on to say that for second year in a row the U.S. Government expects to borrow over $1 trillion .Obviously there will be an increase in Debt issuance to pay for this. Small positive is that this year is borrowing needs to be a bit less than last years. None the less more issuance =higher yields

 Probability for 50Bps rate cut are dropping  now below 10% as  Todays pending home sales and Consumer confidence do not show an economy in need of 50bps cut, Core  PCE still stagnant  which does lead to a 25 bps insurance cut, I guess. So pricing for 50 bps being unwound = treasury yields moving higher.

 Grains bothered by trump tweet regarding lack of China purchases, Weather a bit bearish for Soy and expectations that old Crop Stocks will be a bit bigger than expected as Export orders are slow. Corn -1.4% soy -1%

Consumer Confidence Commentary

From the Confidence Board:

After a sharp decline in June, driven by an escalation in trade and tariff tensions, Consumer Confidence rebounded in July to its highest level this year,” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. “Consumers are once again optimistic about current and prospective business and labor market conditions. In addition, their expectations regarding their financial outlook also improved. These high levels of confidence should continue to support robust spending in the near-term despite slower growth in GDP.”

Consumers’ assessment of present-day conditions improved in July. Those claiming business conditions are “good” increased from 37.5 percent to 40.1 percent, however, those saying business conditions are “bad” also increased slightly, from 10.6 percent to 11.2 percent. Consumers’ appraisal of the job market was also more favorable. Those saying jobs are “plentiful” increased from 44.0 percent to 46.2 percent, while those claiming jobs are “hard to get” declined from 15.8 percent to 12.8 percent.

Consumers were more optimistic about the short-term outlook in July. The percentage of consumers expecting business conditions will be better six months from now increased from 19.1 percent to 24.0 percent, while those expecting business conditions will worsen declined from 12.6 percent to 8.7 percent.