Friday July 7, 2017 - 15:29:54 GMT
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Credit Markets Starting To Discount Transition From Quantitative Ease
John M. Bland, MBA
Fed Minutes Do Not Disappoint FOMC policy meeting minutes following each meeting have become an important part of the central Bank's communication process. They are also roughly three weeks ahead of the following meeting. They are not just a recap of the meeting, but they have been evolving into a policy update mechanism. What is released seems now to be aimed at explaining the most current thinking on policy. The latest Minutes released focused on the concerns of some at the Fed who now might be having second thoughts about an aggressive policy normalization process in 2H17. They also revealed a split among policy-makers on the timing of that balance-sheet normalization, while suggesting the bank plans to maintain gradual rate hikes. As for a mid-September Fed rate hike, as of this juncture, Fed Fund Futures have only priced in about 5bps of a typical 25bp rate hike at the mid-September FOMC. Obviously the markets are not convinced yet that another rate hike is imminent.
In the wake of the ECB Central Bank conference last week in Portugal, the markets got the clear message that central banks were warning that QE will be starting to draw a close sometime in the not-too-distant future. In response to this signal, global interest rates have been drifting higher in the latest week in response to fears about a massive sudden release of government paper into the markets. Hopefully the various major central banks will be cautious and gradual sellers of paper until they see how well it is being absorbed. Already on Thursday a French OAT 30-yr auction was not well received by the markets due reportedly to disappointing overseas demand.
Mixed U.S. June Employment Data The June U.S. employment report saw a 222K increase in headline employment. This beat street estimates for a gain of 180K in the month. Furthermore, the May data were revised higher to +158K from +138K. The unemployment rate increased to 4.4% from 4.3%. The “underemployment rate was 8.6% vs. 8.4%. The higher unemployment rates resulted from workers returning to the workforce, which is seen as a positive sign. On the other hand. Average Hourly Earnings came in again at +0.20% m/m vs. a street estimate of +0.30%. These data are key indicator for the Fed and an ongoing disappointment.
Amazing Trader EVENT RISK Calendar:
Wed 12 Jul
08:30 GB- Employment
14:00 CA- Bank of Canada Decision
14:30 US- EIA Crude
Thu 13 Jul
12:30 US- Weekly Jobless
Fri 14 Jul
12:30 US- Retail Sales
12:30 US- CPI
14:00 US- University of Michigan Survey
Be sure to refer daily Global-View to see the continuously UPDATED Economic Calendar and the Forex Forum for the complete list of key items (actual data, selected charts, etc.) as they are released.
John M. Bland co-founding partner www.global-view.com
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