Friday Chart Book
As I opined in the Mid-Week Update, Powell chose the easy route and homed in on the idea that the hurdle for hiking rates is pretty damn high. Many commentators are taking this as the green light to push the risk-on button as their policy intentions have now doubled down. Not so fast. This is coming from the same geniuses who thought that inflation was transitory before then declaring victory prematurely last December. In short, they are clueless.
Read my piece on “Inflation Redux” and familiarise yourself, once again, with the historical precedence. In short, declaring victory prematurely isn’t such a smart thing.
Powell's comments justified their current stance and relaxed attitude towards their price stability goal, suggesting a slight shift in perception of the labour market. The Fed also seems to acknowledge potential softening ahead but noted it would take a significant weakening to prompt a reaction. He noted that several labour market indicators point towards a cooling, including normalized quits and hiring rates. Powell also downplayed concerns about persistent housing inflation.
The aftermath of his comments resulted in collapsing implied bond volatilities across the spot and forward spectrum.
This, by simple mechanics, rings the “risk-on” bell in FX carry land as right-tail (hike) probabilities vanish. Looking beyond the initial reaction, however, I would question the Fed’s stance if the growth & inflation path continues on its current trajectory. Markets, ultimately, will do the job for the Fed. As such, I would expect steeper curves and more risk premia compression ahead. The market often gets what it wants. Let the games begin.
Also, it is important to keep in mind that in a couple of months, base effects are likely to cause core PCE to rise. Last June was +0.17%, July +0.10% and August +0.10%. The recent monthly run rate has been in the 0.3-0.5% range. Come the FOMC’s September meeting, the data in hand could easily have core PCE at 3.0% and at its highest for 2024. As I opined in my tweet, “Good Luck, Jay”. Also read my guest editor Macro D’s piece on the Fed for more thoughts.
Let’s now turn our attention to the charts. By now, most of you will be familiar with the models and their signals. If not, please study the guide I have published. I have now also recorded a brief video tutorial, which you will find further below.
The full book of 250+ charts covers the whole asset spectrum from equities, bonds, commodities, FX and Crypto to give you the most extensive view. On average, it will generally provide a good 5-10 set-ups on a weekly basis.
A reminder that you can now also use my models in TradingView scripts, which I made available for subscribers to use on their charts for a fee. If you are interested, ping me an email with your TV username. Note that only paying subscribers will be granted access. No exceptions.
Let’s go!