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10Y dollar S&P 500

“Our Animal Spirits Have Been Shot By Poachers”

"It’s not so much whether the Fed minutes were a damp squib, the media round by the Treasury Secretary was underwhelming or we were once again reminded of European political risk"...

Ok, finally.

Leave it Bloomberg’s Richard Breslow to sum up a few of the points I’ve been keen on driving home since the Fed Minutes hit on Wednesday afternoon.

As noted on Thursday evening, the Minutes effectively short-circuited the whole hawkish mindset the had become firmly entrenched since Janet Yellen’s testimony on Capitol Hill. Treasury Secretary Mnuchin’s comments on fiscal stimulus timing only served to further undermine the reflation narrative.

Earlier this week, I noted that Breslow “didn’t see what you were so damn punchy about.” Well, a few days later and no one’s feeling very punchy. In fact, our “animal spirits have been poached.”

More below.

Via Bloomberg’s Richard Breslow

The first thing someone said to me this morning was “Thank God It’s Friday”. A throwaway line to be sure, but given the events of the past week, I got the sense that it was meant sincerely. I was about to agree when it occurred to me that, what I really wanted, was to demand a re-do.

  • Safe-haven assets are going out bid, even while broader, lower-for-longer, activist central-bank markets remain remarkably sanguine. Buying safe assets as a hedge for the reach for yield is the unhealthy kind of hedging. Welcome back to the old normal
  • Markets felt peppy early in the week. People were buying the upbeat story for the economy. Moving forward bets on global reflation and perhaps a more aggressive Fed. Traders were looking forward to maybe learning more about fiscal stimulus. Even while being disingenuously assured that it would merely be icing on the cake for buoyant equities. It all seems to have fizzled out. It feels like we are observing lent without the fun of Carnival first
  • It’s not so much whether the Fed minutes were a damp squib, the media round by the Treasury Secretary was underwhelming or we were once again reminded of European political risk. It’s more that our animal spirits got shot by poachers
  • Earlier this week, someone wrote that with German numbers coming in so hot, the ECB’s hand may be forced. Well, bund yields have decisively broken below key resistance at a measly 30bp, having fallen 25bp in February alone. And investors are willing to buy the two-year at negative 90bp!
  • Remember when gold got hammered after the U.S. election? Well, that’s in the past. And it looks likely that it will close back above its 21-month moving average with plenty of room to spare
  • The Fed always likes to say they want to avoid “surprising” the market. But every time traders are forced to cover trades put on based on their speech-making, there’s that much more of a potential surprise built into the market should they get around to doing something. Especially if the short-covering is forced and doesn’t necessarily reflect a view on the economy
  • Well, I won’t get my do-over until next week, but I assure you nothing has been settled yet
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