Can You Hear Me Now?

Can You Hear Me Now?

So one of the things I’ve been harping on since the release of the Fed Minutes on Wednesday is this palpable, nagging unwillingness for commentators to just come out and admit that they were wrong when they pushed headline after hawkish headline yesterday advertising how the Fed was telegraphing a March hike.

Those headlines (which came rapid fire) pretty clearly suggested that their authors were either not watching the market’s reaction to the Minutes or if they were, they didn’t have a clue what the market was trying to say. I tried to explain things in “No, Those Fed Minutes Were Not Hawkish.”

Well, “can you hear me now”?


Needless to say, Mnuchin didn’t do the reflation narrative any favors.

Here’s Bloomberg explaining today what I tried to explain yesterday, although you’ll note the overwhelming tendency to cling to the hawkish narrative despite the market moves:

The dollar was down against most of its G-10 peers and near its session low, nursing losses sustained after Treasury Secretary Steven Mnuchin said that fiscal stimulus effects on the economy in 2017 may be limited.

  • The dollar lost out Thursday as traders and investors struggled to balance hawkish Fed rhetoric and the shifting European political landscape against economic and interest- rate fundamentals
    • With Treasury yields far above comparable rates in the euro area, the dollar should still hold the upper hand in the longer-term, and euro gains seen since French political tensions eased may not last, traders in London, Europe and Toronto said
    • But while sentiment and yields favor buying the dollar on dips, the technical picture looks less robust as the dollar trades below the 100-day moving average
  • Reflecting the concern over the French election, where anti- euro candidate Marine Le Pen is seen as winning the first round before being defeated in the second, traders note strong demand for downside euro strikes in the two-month tenor that covers the initial vote on April 23, while vol for the date and risk-reversals favor euro puts by the most in 8 months
  • At the same time, the USD was undermined by a drop in the 10Y Treasury yield, which fell to its lowest since Feb. 9, extending losses that began Wednesday after minutes of the FOMC meeting were seen as not strengthening the case for a March rate increase, despite the torrent of hawkish remarks from Fed officials in recent days and market pricing of a March rate increase that held around 38% Thursday


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