On Monday, we heard the first five
Fed speakers, as all of them strive
To make a clear case
As why there’s no place
For cuts, lest they see a crash-dive
 
Amazingly, later today
We’ll hear seven others soothsay
Inflation’s still falling
Although it was stalling
Last quarter, much to our dismay

 

As Queen Gertrude noted in Shakespeare’s Hamlet, “The lady doth protest too much, methinks.” This is the first thing that comes to mind as we face yet another seven Fed speakers today (at eight venues, Mr Bostic will speak twice) in their effort to effectively communicate their current strategy, whatever that may be.  The very fact that we will have heard from a dozen of the nineteen FOMC members in the first two days of the week implies to me that the FOMC has absolutely no confidence that market participants are on the same page as they are.

My first observation is they really don’t have any idea what to do to achieve their goals.  Whatever their models are telling them, it is not aligned with the reality on the ground around the nation.  This is the most benign explanation I can see for their actions.  History has shown that the Fed PhD’s all believe very strongly in their models and when the models don’t accurately describe the economy, their first instinct is that the economy is wrong and that the people who make up the economy are not behaving properly because they don’t understand the beauty of the models and why the model should be correct.  This is akin to the government complaining that things are great and those who say otherwise just don’t understand things well enough.  Not surprisingly, this leads to overcommunication as the in-house view is the messaging is the problem, not the reality.

A less benign view is that they are politicking quite hard to ensure that the current administration is re-elected because they have a significant fear of a change of control at the White House.  As such, they believe that a constant drumbeat of ‘things are going to get better, and we are doing a great job’ will allay any fears that the current administration’s policies have resulted in the inflation that has been the main feature of the nation’s very clear unhappiness.

Perhaps the thing I understand less, though, is why any market participants even care about what Fed speakers say right now.  After all, yesterday’s comments were so closely aligned that a single speech would have sufficed.  I am quite certain that today’s messages will be similarly aligned both amongst themselves and with yesterday’s message.  The one thing that is very clear is that Chairman Powell has them all singing from the same hymnal.

And for those of you who have not been paying close attention, the message, in a nutshell, is that Q1 inflation was disappointingly high and so while April’s data was a bit better, they still do not have confidence that inflation is going to quickly head back to their 2% target so will maintain the current, restrictive, policy for as long as necessary.  It strikes me as unnecessary to have a dozen FOMC members repeat this message in a short period of time.

At any rate, given the remarkable lack of new information, other than the Fedspeak, which as I explain above is hardly new, let’s look at the markets overnight.  Yesterday’s US equity markets mixed performance was followed by weakness throughout Asia with Japan (-0.3%) slightly lower and Hong Kong (-2.1%) sharply lower and a lot more red than green throughout the region.  Of course, given the recent rally we have seen, it is not that surprising to see some consolidation.  European bourses are all lower this morning with losses ranging from Spain (-0.25%) to France (-1.0%) and everything in between.  There has been precious little new information here either, so again, given most of these indices are near record highs, some consolidation is inevitable.  Finally, US futures are little changed at this hour (7:30) as the market awaits idiosyncratic news for individual stocks as well as Nvidia earnings later this week.

In the bond market, quiet is the name of the game with Treasury yields edging lower by 2bps this morning, but really, just back to where they were yesterday morning.  Across Europe, the sovereign market is mixed with Switzerland (+3bps) the worst performer and the UK (-2bps) the best but most markets unchanged on the day.  Unchanged also describes the Asian session as JGB yields didn’t budge.

In the commodity markets, oil (-1.5%) is under pressure this morning, following yesterday’s modest declines as clearly there are no concerns over the situation in Iran regarding the death of the president there yesterday.  As to the metals markets, which in fairness have been FAR more exciting, more record highs yesterday are seeing a bit of consolidation this morning, although the declines in precious, (both Au and Ag -0.25%) are modest.  However, copper (+0.7%) knows no top as it continues to rally on the growing understanding that there is a long-term supply/demand mismatch, and it will be a sellers’ market going forward.

Finally, the dollar is basically unchanged this morning as while it has fallen from the recent highs at the beginning of the month (DXY at 106.40), there is very little follow through selling of the dollar now that US yields have stopped declining.  Recall, Treasury yields are lower by about 25bps in the same period but have stopped their decline as well.  The largest movers overnight have been KRW (-0.3%), which suffered after a weaker than expected Consumer Confidence reading and NOK (+0.3%) which is odd given oil’s recent weakness but absent any other related news.  Sometimes, markets simply move.

And that’s all there is today.  The Fedspeak starts at 9:00 with Richmond’s Thomas Barkin and Governor Chris Waller at separate venues, and last all day into the evening when Bostic, Collins and Mester speak at 7:00pm.  My money is on the idea that there will be nothing new learned from any of them.

As such, we remain in a holding pattern, I think.  US rates are finding a home around 4.4% and the dollar index at 104.50 seems pretty comfortable as well.  While later in the week we start to see some new information, I fear that until next week’s PCE data, we could well be stuck in a pretty narrow range.

Good luck

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