April 26, 2023 | Daily JAM, Videos |
Today’s topic is Look Out Below! Central Banks to Take Away $1 Trillion in Cash. Citigroup recently reported that central banks pumped about $1 trillion into the financial markets during the recent bank-collapse crisis. While investors are currently focused on interest rates and inflation and how that affects the price of money, they may be overlooking this important liquidity story. Citigroup projects that this much liquidity injected into the financial system is equal to a rate cut of 50 basis points. The market indeed has received the rate cut it was looking for, just not where it was expected. We’ve now seen peak liquidity. Central banks will not keep putting this kind of liquidity into the market, and in fact, will try to take some of it back. Citigroup says we’ve gone through a risk-on rally fueled by extra cash from central banks, making junk bonds and high-risk investments very attractive. We also had a rally in corporate debt, as investors felt they could take on more risk with more cash in the market. Taking all this out of the market will make risk less attractive.
April 23, 2023 | Daily JAM, Morning Briefing, Short Term |
The Bureau of Economic Analysis is scheduled to report the Personal Consumption Expenditures index, the Federal Reserve’s preferred measure of inflation, on April 28. But because the Fed’s pre-meeting quiet period stretches from April 22 to May 4, there won’t be any comments from Fed officials to spin the data for the financial markets. That could be, well, awkward, since it will leave Wall Street more in the dark than usual about what the inflation results mean. The PCE index is expected by economists surveyed by Bloomberg to have fallen in March to a 4.1% annual rate from the 5% reported for February. If the inflation numbers come in on expectations, investors and traders will be left wondering if the drop is enough to lead the Fed to stop its interest rate increases after a 25 basis point boost at the May 3 meeting.
April 14, 2023 | Daily JAM, Morning Briefing, Short Term |
It is good, maybe great news this morning from three of the country’s biggest banks. JPMorgan Chase posted a surprise 2% increase in deposits and first-quarter net income surged 49%. Wells Fargo (WFC) saw net interest income rocket by 45%. Citigroup (C) reported a 23% gain in net interest income and a 4% increase in fixed-income trading. As of 2:30 p.m. New York time JPMorgan Chase shares were up 7.33%. Wells Fargo had tacked on a small 0.05% gain. And Citigroup was up 4.88%. And all the major stock indexes were significantly in the red.
April 12, 2023 | Daily JAM, Long Term |
Minutes from the Federal Reserve’s March 21-22 meeting show the central bank’s staff projecting a mild recession later in 2023 with a recovery from 2024 to 2025. A key reason cited by the staff: stress in the banking sector.
April 10, 2023 | Daily JAM, Videos |
This week’s Trend of the Week is Houston, We Have a Trend Problem. The problem with trends is that the data is always old. There is always a lag. Inflation numbers for March will come out on April 28, jobs numbers for March came out on April 7, and GDP first quarter numbers will be in around April 27. These month-old numbers tell us where we’ve been, but we need to know where we’re going–and importantly, the speed at which we’re moving. It’s not just the trend, it’s the momentum of the trend. Inflation is undoubtedly coming down. What we don’t know is how the combination of Fed actions, a slowing economy, and the banking crisis are affecting inflation and economic growth. Currently, core inflation numbers are around 4.5%, and the Fed still wants those numbers closer to 2%, but for how long will the Fed continue to raise rates, and how close will the central bank actually get to 2%?m All that is still up in the air. At the time of filming, the consensus (56%) was that the Fed will raise rates another 25 basis points in May, and then pause. The decision is data-dependent, but the problem with that is that the data right now is all past data. The data doesn’t show real-time momentum. Forward-looking data doesn’t actually exist, but boy, would it be great if it did!
April 10, 2023 | Daily JAM, Mid Term |
U.S. households project that inflation a year from now would stand at 4.7%, versus February’s 4.2%, according to the most recent survey from the New York Federal Reserve Bank. This was the first increase in year-ahead expected inflation since October.
April 8, 2023 | Daily JAM, Morning Briefing |
Look for a disconcerting CPI inflation report for March on Wednesday, April 12. The headline, all-items inflation rate is expected to drop to an annual rate of 5.2% from 6%, according to economists surveyed by Bloomberg. That would be good news for the Federal Reserve’s effort to lower inflation. Except that economists expect the core Consumer Price Index inflation rate, which excludes more volatile energy and food prices, to rise to an annual rate of 5.6% from 5.5%. And the core rate is the inflation rate that the Fed watches.
March 30, 2023 | Daily JAM, Morning Briefing, Short Term |
Today the Federal Reserve mounted a full-court press (Hey, it is March Madness time, right?) on the need for at least one more interest rate increase before any pause. And financial markets were listening.
March 25, 2023 | Daily JAM, Mid Term, Morning Briefing |
Goldilocks is just about the only thing keeping the current stock market afloat in the face of a storm of worry from a banking crisis, to stubbornly high inflation, and signs of a cooling economy. The Goldilocks story says, Don’t worry about all that. The Federal Reserve is about to pivot on interest rates. At its May 3 meeting, the Federal Reserve Open Market Committee might raise interest rates by 25 basis points but that will be the last interest rate increase. And then the Fed will move to start cutting interest rates in the second half of the year with financial markets pricing in as much as 200 basis points of cuts by the end of 2024. And all this will happen, too, without a recession, as the Fed engineers a successful soft landing of the economy and a significant slowdown in inflation.
If you believe that, you should be buying stocks. I don’t believe it. And more importantly, the bond market doesn’t believe it.
March 23, 2023 | Daily JAM, Morning Briefing |
I argued in my YouTube video on Tuesday that this was a market without a trend. So far that seems about right.
March 22, 2023 | Daily JAM, Short Term |
Not a whole lot of news out of today’s breathlessly awaited meeting of the Federal Reserve’s Open Market Committee. The committee raised its short-term benchmark rate by 25 basis points to a range of 4.75% to 5%. That move had about 80% odds in its favor going into the meeting. The Dot Plot projections kept the interest rate forecast at 5.1% for the end of 2023. That was unchanged from the December Dot Pot projections.
March 18, 2023 | Daily JAM, Mid Term |
The Federal Reserve will meet on Wednesday, March 22 to set interest rates. There are three things to watch from that meeting. First, whether the Fed will raise interest rates or not and by 25 basis points, 50 basis points, or not at all. Second, we will get the first update of the Dot Plot since the December 14 meeting that projects what Fed officials think interest rates, inflation, unemployment, and GDP growth will be at the end of 2023 and 2024. Third, the financial market reaction to the news out of the meeting will tell us if the Fed (as I’d argue) has lost control of the interest rate narrative and that the bond market is now calling the direction and pace of changes in interest rates.
