- Fed’s Warsh: Numbers on price stability are ‘more concerning’
- Univ of Michigan final sentiment index for August 51.7 vs 51.0 estimate
- Fed’s Hammack: It’s time to act with rate hikes, waiting will create pain
- Canada GDP Q2 annualized 3.3% vs 3.4% estimate
- Fed’s Goolsbee: Agrees with Warsh that inflation is Fed’s main issue right now
- Non-farm payrolls benchmark revisions trimmed employment by 79K jobs
Markets:
- Gold down $145 to $4455
- US 10-year yields up 5.4 bps to 4.73%
- US 2-year yields up 12 bps to 4.36%
- WTI crude oil down 8 cents to $83.43
- USD leads, NZD lags
- Nasdaq down 0.5%
- S&P 500 down 0.2%
It was a fairly straight-forward day in terms of ‘what happened and why’ in financial markets. The cosnensus ahead of Warsh was that he wouldn’t offer much of a steer on rates and lean into ambiguity but that wasn’t what unfolded. Instead, he emphasized several reasons why the inflation part of the mandate was missing and pledged to get inflation back to target in stronger-than-expected terms. The comment were undoubltedly hawkish and market pricing went to 62% for a Sept hike from 33% before the comments.
The market response was ultimately what you would expect as yields rose, USD climbed and stock markets declined but it was a winding path to get there. The market initially seemed not to know what to make of it and stocks jumped in the aftermath, led by tech. However that fizzed in a couple hours and stocks sagged, led by tech and utilities.
The dollar move was also jerky but ultimately steady as it gained consistently across the board and to the highs of the week on most fronts.
The precious metals and bitcoin moves were more dramatic, with the group falling 3-4% on signs the Fed really is serious about getting inflation to 2%. The next spot to watch will be the long end of the Treasury curve as yields should fall at some point if the Fed proves it will get inflation back to target and keep it there.
Overall, Warsh made a compelling case for a stronger economy that isn’t being held back by rates at current levels and that inflation expectations stay contained until — suddenly — they don’t because the central bank loses credibility. If not for the persistent belief that Warsh is in Trump’s pocket, he would have moved the market more.
Have a great weekend.
This article was written by Adam Button at investinglive.com.
