It’s Monday morning and former FX trader Richard Breslow is already furious.
Actually no, he’s “outraged.”
Why? Well apparently he now believes that thinking in terms of narratives and “paradigm shifts” (something Richard has railed against in the past) is a good idea, but the low vol. regime is making it impossible.
He’s also outraged that the Fed won’t come out and admit to following a third mandate centered around pricking bubbles in risk assets by leaning against excessively loose financial conditions and more generally, he’s “looking for a vision.” “What,” Richard asks, is the goddamn “plan”?!
Oh, and he thinks the Bank of Canada is probably going to perpetuate the notion that rates are going to rise across DM markets and that notion, he figures, is a global “conspiracy theory.” More below…
It may be full-on summer and volumes so far today have been light, but there’s a lot of news out this week that does require your attention. And not just a single blockbuster but news from every region. Specialists and generalists will all get to strut their stuff. For the laundry list, you’re on your own. For my money, I’m focusing on Janet Yellen’s Congressional testimony, Friday’s inflation numbers out of the U.S. and Wednesday’s Bank of Canada rate decision.
- I’m also outraged. While it’s the perfect opportunity for investors to be thinking big and pondering paradigm shifts, this low volatility has made us slice and dice our market view so finely that we actually end up thinking very small. And no matter how dramatically we describe a few basis point move, sometimes that’s all it is
- When the Fed Chair speaks, I don’t have any interest in data dependence, global tail winds or potential fiscal policies outside of the central bank’s control. I’ll stipulate that all of the above are legitimate issues. But they’re merely filler, with no new information value. I’m looking for the vision. What’s the plan? If the goal is to end inflated assets, crisis-rate levels or obscene balance sheet sizes, then say so
- The Fed, quite correctly, pushes back against rule-based monetary policy. So embrace that fact and explain if indeed there is an over-riding desire to get on with normalization. Being coy won’t increase anyone’s chances of reappointment
- Having said that, there’s no getting around the fact that the CPI report at the end of the week is unlikely to contain any upside surprises. Absent overt hawkishness from the Chair, bond yields will have a hard time breaking sustainably higher until we’ve seen the white of this report’s eyes. In the interest of candor, I have to admit, it’ll be a lot more fun if this one shows some gusto
- Who would have thought that a Bank of Canada decision, especially now, would potentially be the highlight of the week. It wasn’t very long ago that the Canadian economy was being described in dire terms and analysts were wondering how far the currency could fall. Now it’s when, not if, on a rate hike following yet another blowout employment report. Futures have fully priced in a move even if commentators haven’t. They could move now or wait a meeting. But given all of the global central bank hawkishness, going sooner rather than later will help fuel the conspiracy theory on official global rates and quite likely have price consequences well beyond the borders of North America
- Sovereign yields have made some nice moves, but hardly dramatic ones. We will never be out of this emotional hole until we believably debate Treasury yields in 25 and 50- basis point increments rather than moves of a few pips. Nothing has really changed if a break of 2.42% merely opens up the chance to get to 2.45%