Archive

Reuters blog archive

from MacroScope:

Fed and BoE to markets: pay attention to pay

A bookie holds a wad of cash on the third day of the Cheltenham Festival horse racing meetingIt is more than a bit ironic that those paid the most to pay attention to incoming data aren’t paying enough attention to pay.

Both Bank of England Governor Mark Carney and Federal Reserve Chair Janet Yellen have dropped many hints in speeches and public policy statements over the past several months that wage inflation likely will play an important role in any decision to raise interest rates.

Carney also made clear in parliamentary testimony on Tuesday that his interest rate rise warning last month that took so many off guard was a deliberate attempt to inject some volatility back into a very sleepy and complacent interest rate futures market.

It was old school, and it worked.

Much like a central banker would do in the days before the financial crisis, now Carney says the data will dictate where rates will go.

from Counterparties:

MORNING BID – What’s all the Yellen about?

Rants from TV commentators aside, the market’s going to be keenly focused on Janet Yellen’s congressional testimony today, with a specific eye toward whether the Fed chair moderates her concerns about joblessness, under-employment and the overall dynamism of the labor force that has been left somewhat wanting in this recovery. The June jobs report, where payrolls grew by 288,000, was welcome news even as the economy continues to suffer due to low labor-force participation and weak wage growth.

Inflation figures are starting to show some sense of firming in various areas, for sure, but still not at a point that argues for a sharp move in Fed rates just yet. Overall, a look at Eurodollar futures still suggests the market sees a gradual, very slow uptick in overall rates – the current difference between the June 2015 futures and June 2016 futures are less than a full percentage point – not as low as it was in May of this year, but still lower than peaks seen in March and April 2014 and in the third quarter of 2013, before a run of weak economic figures and comments from Fed officials themselves scared people again into thinking that the markets would never end up seeing another rate hike, like, ever again.

from MacroScope:

Bank of England, the first mover?

carney.jpg

After the European Central Bank kept alive the prospect of printing money and the U.S. economy enjoyed a bumper month of jobs hiring prompting some to bring forward their expectations for a first U.S. interest rate rise, the Bank of England holds a monthly policy meeting.

There is no chance of a rate rise this time but the UK looks increasingly nailed on to be the first major economy to tighten policy, with the ECB heading in the opposite direction and the U.S. Federal Reserve still unlikely to shift until well into next year. Minutes of the Fed’s last meeting, released yesterday, showed general agreement that its QE programme would end in October but gave little sign that rates will rise before the middle of 2015.

from Counterparties:

MORNING BID – Minute by minutes

The bond market remains pretty much tethered to the 2.50 percent to 2.60 percent range that's prevailed for the 10-year note for quite some time now, with the primary catalyst being today's release of the Federal Reserve's minutes from its most recent meeting. The relevant data that investors are probably paying most attention to - the jobs report last week, the JOLTS jobs survey, shows some more things that is meant to keep the Fed engaged rather than moving toward an imminent increase in rates. The quit rate - the rate at which people leave jobs for others - is still historically a bit on the low side, not at a level that would make the Fed more comfortable that the kind of labor-market dynamism needed for the Fed to shift to raising interest rates. Fact is, the central bank just isn't there yet.

And with that in mind, that means those investors clamoring for higher rates are probably going to continue to see their expectations unmet for a longer period of time, and with sovereign buyers from Europe and Japan wandering outside those halls, there's an ongoing bid in the market that continues to thwart short-sellers who are just waiting for that right moment to bet against the bond market. That's been a lonely trade of late - or rather, a popular trade, just a big loser as trades go.

from Breakingviews:

Don’t believe predictions of low interest rates

By Edward Hadas

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Will the new normal for interest rates be lower than the old? It is rapidly becoming conventional wisdom that years of near-zero overnight rates will be succeeded by an indefinite period in which borrowing costs remain low by the standards of the last few decades. The new consensus is reflected in financial markets: the yield on 30-year U.S. Treasury bonds has fallen from 4 percent to 3.4 percent this year. But it is built on unsound foundations.

from Counterparties:

MORNING BID – Next for Puerto Rico, Argentina and the Fed

The market's recent chatter has revolved specifically around whether the strength in the jobs figure from last week moves forward the expected timing of the first interest-rate hike from the Federal Reserve.

The answer: yes, but probably by not that much. Jobs growth of 288,000 for June was better than expected, and that 6.1 percent unemployment rate looms large for those who figured the Fed would be ready to start raising rates after at least 6.5 percent was surpassed. So we're there on that, but as Kristina Hooper of Allianz points out, the wage growth seen hasn't been terribly strong, and the types of jobs being created – a lot of which are in lower-paying industries like retail – don't portend the same kind of economic strength that might have been manifest by now in other iterations of U.S. recoveries.

from MacroScope:

U.S. hiring may be rebounding, but wage growth is not

AThe U.S. job market has finally turned a corner. What is remarkable is that it has taken so long.

Companies have finally begun taking on staff in consistently greater numbers, half a decade after the end of a deep recession brought on by one of the most punishing financial crises in history.

from Unstructured Finance:

‘Bond King’ Gross speaks to 700 at Pimco client event in Big Apple

By Jennifer Ablan

Bill Gross did something last week he rarely does -- venture from his Newport Beach, Calif. home to meet with investors twice. 

First in Chicago at the Morningstar Investment Conference where he made waves for donning sunglasses and joking he'd become "a 70-year-old version of Justin Bieber," and then, the next day at a less-publicized event for 700 clients in New York City. 

from Counterparties:

MORNING BID – Speculating on a Hypothesis

A few thoughts as the market heads into a relatively quiet week featuring mostly Federal Reserve speakers and a few other random events that aren't likely to knock the market to its knees:

    Bear markets don't just start "because," as Dan Greenhaus of BTIG puts it. Usually there are a few factors, but most often it's some combination of speculative excess, tightening rates, and a reduction in that bit of froth in an area that's crucial to the bull market or economic expansion in question. When technology investing money dried up and the companies that sold shares to the public foundering on a lack of earnings, the tech bubble was unwound pretty quickly. The financial crisis came about as banks became unable to handle the volume of debt that had been sold and as the Fed raised rates, sapping demand in the "greater fool" housing market, and as the banks ate themselves under synthetic products that weren't anything underlying. So with that in mind, what's the speculative excess now? Probably the overall thing is ultimate low rates, because when that does go, the market is going to view growth differently. The expectation for higher rates is a primary underpinning for overall investor nervousness. If rates are higher, the expansion is threatened, and inflation becomes an issue. It's not that those conditions exist now, but the prevailing view for rising rates explains in many ways why this bull market is as loathed as it is. People remain wary of making bets in this market, even if retail investors would have been handsomely rewarded by getting in at any morn, so that's point in favor of them rather than against. Higher rates often do end up killing a lot of bull markets - and economic expansions - so the inflation figures and the Fed members' beliefs related to the threat of rising prices are all important, and we'll attempt to make sure of the chatter coming from the likes of Charles Plosser, Jeff Lacker and John Williams. So that's the second team when it comes to Fed speakers (Bill Dudley also speaks, but the Puerto Rican economy is the topic) in terms of influence, but still, those views remain important. Complacency isn't a "thing." As Luciana Lopez and Jennifer Ablan wrote about late last week, the VIX being low isn't a workable assessment of the concerns thousands of investors have about the equity market and economy, particularly when the VIX really only reflects expectations for volatility in the coming couple of weeks and not in any long-term kind of way. So yes, the VIX around 10 doesn't make a lot of sense until you remember it's been about 45 cays where the index hasn't even hit a 1 percent change - so realized volatility has been in the 4 percent range.

from Anatole Kaletsky:

Yellen’s remarkably unremarkable news conference – and why it’s a good thing

Yellen holds a news conference following two-day Federal Open Market Committee meeting at the Federal Reserve in WashingtonJohn Maynard Keynes famously said that his highest ambition was to make economic policy as boring as dentistry. In this respect, as in so many others, Federal Reserve Chair Janet Yellen is proving to be a loyal Keynesian.

Yellen’s second news conference as Fed chair conveyed no new information about the timing of future interest rate moves. She gave no hints about an “exit strategy” for the Fed to return the $3 trillion of bonds it has acquired to the private sector. She told us nothing about the Fed’s expectations on inflation, employment and economic growth -- not even about the board’s views on financial volatility, regulation, asset prices or bank credit policies.

  •