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Pick up our latest Bear Traps Report here.
“The risk-reward in betting on Fed action in the July – September time frame is the most attractive in three months. Global credit and economic risks shot the March and June rate hikes right between the eyes, took the steering wheel out of Janet’s hands. This will position the Fed to start signaling for a July hike, sometime in the next 45 days. That would be a dollar positive; gold / commodities / EM negative. She’ll likely try and get back in the driver’s seat. In recent years, the rebound in Q2 vs Q1 GDP has been meaningful, north of positive 1%.”
The Bear Traps Report; May 2, 2016
As we witnessed last July and again in November, Fed governors are starting to prepare the market for a rate hike.
Why Should You Care?
Average stock market returns on days around when the Federal Reserve meets were over 20x the average trading day, per Bear Traps Report analysis.
The Road Ahead
As we trade and invest around the all important Federal Reserve policy moves, a key distinction must be made. Will they prepare the market and then “back away” or will they prepare the market and then “go.”
Last September: Prepared the Market, then Backed Away
Last December: Prepared the Market, then Hikes Rates
Beware of No Skin in the Game!
It blows my mind as to how many people focus on the latter, while ignore the former. Too many economists espousing on Fed policy have NEVER taken professional risk. Their dribble is couched in “no skin in the game.” Thus, the crucial reality of the situation is often ignored. There are colossal trades in both scenarios, see our latest Bear Traps report here.
In measuring the efficacy of Fedspeak, its far more important to watch for changes in a Fed Governor’s language, than Fed regional bank Presidents. In order to trade stock, bond or currency markets around central bank positioning, we must all be aware of who’s in Janet Yellen’s inner circle.
FOMC Governors (Voters) in 2016:
-William Dudley – New York
-Lael Brainard, Board of Governors
-Stanley Fischer, Board of Governors
-Jerome Powell, Board of Governors
-Daniel Tarullo, Board of Governors
Regional Bank President Voters in 2016
-Loretta Mester – Cleveland
-Eric Rosengren – Boston
-James Bullard – St. Louis
-Esther George – Kansas City
In the futures market, something funny happened on the way to the June Federal Reserve rate hike.
In recent days, June’s chances have stalled at 31% since May 18th, while July’s chances have continued their surge onward to 45%, see below.
June 2: ECB Decision
June 15: Fed Decision
June 16: Bank of Japan Decision
June 23: Brexit Vote
Fed Fund Futures Probability
“telling us one thing, the market is still underestimating the expectation of a rate hike this summer.
Bottom Line: Fortunes will be made or lost in getting this summer right, join us here.