August 26, 2022 | Daily JAM, Morning Briefing, UUP |
Well, that was short and direct. Especially for the Federal Reserve. In a speech of less than 10 minutes Fed chair Jerome Powell warned financial markets to expect that the central bank will keep raising interest rates and will then leave them at higher levels for some time in order to control inflation. Stocks dropped on Powell’s remarks with the S&P 500 down 2.80% at 3 p.m. New York time.
August 25, 2022 | Daily JAM, Morning Briefing |
This week Fed presidents have set the table for Federal Reserve chair Jerome Powell’s Friday morning speech at the Jackson Hole central bankers’ conference. But it’s not clear that the financial markets are eating off the same menu.
August 24, 2022 | Daily JAM, Morning Briefing |
Yesterday’s minutes from interest rate meetings at two of the Federal Reserve’s 12 regional banks show these banks favored a 100 basis-point increase in the Fed’s discount rate in July 14 votes at the two banks. (The discount rate is the rate that the Fed charges banks to borrow at the Fed’s discount window.) The votes came from the boards of the St. Louis and Minneapolis banks. At the July 27 meeting the Fed’s Open Market Committee voted unanimously for a 75-basis-point increase in the Fed’s benchmark interest rate. The committee also raised the discount rate by the same 75 basis points to 2.5%. For those of us trying to figure out what Fed chair Jerome Powell will say at his Friday speech at the Fed’s Jackson Hole central bankers conference, this is something of an indicator that there’s considerable sentiment at the Fed to keep aggressively raising interest rates.
August 22, 2022 | Daily JAM, Morning Briefing |
Hedge funds are pouring millions into bets that Jerome Powells’ Federal Reserve will use its Jackson Hole central bankers’ confab this week to emphasize its strategy of higher interest rates until inflation is under control. Stocks haven’t liked the increase in yields today. As of 1 p.m. New York time, the Standard & Poor’s 500 was down 1.76% and the Dow Jones Industrial Average was off 1.53%. The NASDAQ Composite had dropped by 2.14%.
August 21, 2022 | Daily JAM |
The Federal Reserve will do everything it can to talk the financial markets out of optimism about future interest rate increases.
The difference of opinion isn’t focused on the September 21 meeting. The market has pretty much decided that the central bank will raise interest rates by either 50 basis points or 75 basis points at that meeting. (The odds on the CME FedWatch tool as of Friday, August 19, were 59% for a 50-basis-point increase, and 41% for a 75 basis-point move. It’s a question of what comes after the September, November, and December Fed meetings. The market seems to have decided that the Federal Reserve will end this cycle of interest rate increases shortly after those meetings. The Fed, in recent remarks, has been trying to convince the market that the fight against inflation is likely to take longer than that. And that the market should expect further interest rate increases into 2023. This week’s central bankers conference in Jackson Hole provides a pulpit for the Fed to preach its message. And I’d expect Fed chair Jerome Powell to use his 10 a.m. Friday speech to say that the Fed isn’t thinking that its inflation fighting work is near done.
August 12, 2022 | Daily JAM |
Ho, hum. Another day another big upside move in stocks. Because we all know that the inflation rate has peaked and is coming down. After all the headline CPI inflation number on Wednesday, August 10, told us so. In July all-items inflation ran at a year-to-year rate of just 8.5%, down from the 9.1% rate in June, and below the 8.7% rate economists were expecting.
Today, August 12, the Standard & Poor’s 500 index w up 1.73%, the Dow Jones Industrial Average was higher by 1.27%, and the NASDAQ Composite ended the day up 2.-5%. The NASDAQ `100 closed higher by 2.06%. The Russell 2000 small-cap index gained 2.09%.
Given, however, that the bulk of the lower-than-expected inflation rate in July resulted from a huge drop in gasoline prices, it’s important to take a look at where oil prices (and the price of gasoline at the pump) might be headed. In the short run there’s nothing so likely to derail this rally than a return to $4.00 a gallon PLUS gas prices.
August 11, 2022 | Daily JAM, Morning Briefing |
It didn’t take long. The pixels were barely dry on yesterday’s CPI inflation report–headline inflation fell to a year-over-year rate of 8.5% in July from 9.1% in June–before members of the Federal Reserve warned that the stock market rally on the news was based on a misreading of the Fed’s likely reaction to the lower CPI inflation rate.
August 10, 2022 | Daily JAM |
As of 2 p.m. New York time, the Standard & Poor’s 500 is up 2.01% and the Dow Jones Industrial Average is ahead 1.53%. The NASDAQ Composite is higher by 2.71% and the NASDAQ 100 has gained 2.64%. The small-cap Russell 2000 index is higher by 2.77%. And all this on a conclusion that the drop in the July headline CPI inflation reading to an 8.5% annual rate from June’s 9.1% rate is enough to make the Federal Reserve decide to raise interest rates by 50 basis points at its September 22 meeting instead of the 75 basis points move so strongly favored yesterday. To understand the size of this shift in sentiment take a look at the odds in the CME FundWatch Tool. Yesterday, the market–this tool uses prices in the Fed Funds Futures market to calculate the odds of a Federal Reserve move–was pricing in a 68% chance of a 75-basis-point increase. This morning, August 10, after the CPI report, the odds of a 75-basis-point increase had dropped to 37.5%.And the odds of the Federal Reserve deciding on just a 50-basis-point increase had jumped today to 62.5% this morning from 32%.That’s quite a shift. And quite frankly I don’t see enough in the data to support this downgrade of the chances of a 75-basis-point interest rate increase on September 22.
August 10, 2022 | Daily JAM, Morning Briefing |
The annual rate of inflation as measured by the headline Consumer Price Index (CPI) dipped in July to 8.5%. That was down from June’s annual rate of 9.1%. Economists had expected the inflation rate to drop to 8.7% However, the news wasn’t as positive on the core inflation front. This measure, which strips out more volatile energy and food prices rose at a 5.9% annual rate in July. That’s unchanged from the June rate. The divergence in the headline and core inflation numbers is all about gasoline.
August 8, 2022 | Daily JAM, Videos |
My one-hundred-and-sixty-fifth YouTube video “Trend of the Week The Fed Talks but the Market’s Not Listening” went up today. The market has strongly rallied in the last month, in good part on the optimistic belief in a “soft landing” from the Fed that controls inflation without a recession and puts an end to rate increases. The fact is, everything the Fed has said thus far indicates they plan to raise rates by an additional 1.5% in 2022 to fight inflation and that they are sticking to their 2% inflation goal in mind. When will the market start paying attention?
August 8, 2022 | Daily JAM, Friday Trick or Trend, Morning Briefing, UUP, Volatility |
In the last week, as odds have climbed of a 75-basis-point interest rate increase from the Federal Reserve at its September 22 meeting, the U.S. dollar has reversed its slide during the last two weeks of July.
Stands to reason. Higher U.S. interest rates make dollar-denominated assets, such as Treasuries, more attractive. More dollar buying, stronger dollar.
August 6, 2022 | Daily JAM |
I expect that all eyes will be on the July CPI inflation (Consumer Price Index) report due on Wednesday, August 10, before the market open. The market hope is that we’ll see the first signs that inflation has peaked after the headline CPI inflation surged at a 9.1% annual rate in June.
