Morning 7-19

 Yesterday Comments by New York Fed president Williams resulted in the market now pricing 41% probability of 50 Bps cut at next fed meeting. A fed Spokesperson tried to walk back Williams comments I paraphrase   They were academic in nature and not aimed directly at U.S. monetary .Too late, Vice chairman Clarida also chipped  in with dovish Comments saying “you don’t need to wait until things get so bad to have a dramatic series of rate cuts”. Markets want to hear bullish things when it comes to rate cuts and they will interpret statements, Speeches, and comments with that as base case outlook, so seemingly benign comments will be considered bullish

 From Morgan Stanley

An increasingly dovish Fed… US risk markets are trying to find the balance between flourishing international liquidity conditions and an economic environment which is likely leading to a US earnings recession. Even though the Fed has been quick to suggest that the speech by New York Fed President Williams was not about potential policy actions at the upcoming FOMC meeting, his remarks are likely to develop a medium-term currency impact as they illustrate that the Fed’s playbook is about to change. It may switch towards increasingly focusing on international developments and their impact on US inflation and economic performance.

…seems to adopt a new playbook… Williams estimates that the US’ neutral rate is around 0.5%, implying that current US interest rates are neutral. Moreover, he expects long-term forces lowering neutral rates to linger and that zero rates lessons (from Japan and Europe) suggest taking swift action. Fed’s Clarida urged policymakers to act preemptively when they can, hinting at the limits on how far US rates can diverge from global rates. It has been the wide interest rate differential and the Fed reducing excess liquidity which have supported the USD. This support may now be withdrawn.

Markets:

 Bunds working on 5th day of higher prices, markets expecting   Dovish ECB at next week is meeting and thus traders getting ahead of these buying bunds. Big Day so far in Copper, Shanghai Copper closed higher by 1.4% almost double 5 day average volume, LME copper  +2.7%, Comex  +2.95%. The run up began right at 8:00 when the Chinese market opened, some rumblings that some Chinese smelters will cut output until prices improve. Nickel pulling back a bit after a 17% run higher over last few days, -2.5% as I type.

 A bit surprising to Dollar higher this morning with the Increase in rate cut expectation’s, Euro -50 pips, GBP -30 and JPY -30 as well

Calendar:

9:00 U of Michigan Confidence

10:10 Feds Bullard ultra dove

3; 30 Feds Rosengren and BOJ Kuroda speak

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