Some quick-fire thoughts and charts for our mid-week musings, with markets so far showing some erratic swings as we are heading into month-end games. The whole parody around Trump ordering Governor Cook’s dismissal is another good reminder that the pressure on the Fed will not decrease anytime soon. It’s a tricky and unprecedented situation with many legal as well as personal question marks being raised. It all reminds me of a typical emerging market move. Not surprised the curve steepened, and the Dollar is selling off on the news. Who is not entertained?
Zooming out for a second here. Looking at the TLT long-term chart would indicate that, despite the narrative of higher rates, the realised volatility has decreased substantially compared to previous years. We were finding typical coiling patterns, with volatility compression ultimately resulting in a bigger move. We stand ready.
France, unsurprisingly, also finds itself in the news again, with PM Bayroux opening a confidence vote on September 8, which is likely to fail, leaving the country in another political mini-crisis while the deficits remain unaddressed. We are still below last year’s highs in the spread to 10-year German yields. Another important reminder of how fiscal negligence gets punished by markets instantaneously.
Let’s now check out a few charts before we welcome back Macro D and his thoughts on the reaction post the Jackson Hole meeting further below.