Powell delivered 50bp as I predicted he would – those trial balloons were not ordinary. Also the „no one left to sell to“ reaction to the bullish (bullish as it is inflating asset prices) reaction arrived iduring the conference.
Bonds declined as predicted, and the strong reaction in commodities (except oil) confirms the above take as much as Russell 2000 performance – it‘s that silver outperformed gold – now as the dust is settling.
So, what led me to the successful prediction, how did I arrive at such a conclusion for clients yesterday well before the opening bell? Quoting the article‘s premium part:
(…) There is upswing rejection with mixed sectoral leadership picture, but I take markets being prepped for 50bp cut quite at last minute seriously – Timiraos with Dudley, and then there is Williams and Goolsbee that had already been pushing for a Jul rate cut (yes, I called it a policy mistake not to cut then). Now, they sound like trying to get ahead of the curve (market craving more cuts) byt starting the easing cycle with 50bp, and I consider yesterday‘s statements as tests of whether 50bp wouldn‘t spook markets anymore.
Yes, it looks like it would nt, and that fostered even greater put to call ratio complacency yesterday, making me consider at least an intraday setback as likely – and it would be steeper than the one called yesterday.
The resilience of 50bp cutting odds yesterday didn‘t send the yen rising, which is the key factor (yen carry trade unwind in progress) that would discourage the Fed from decreasing the yields differential – it isn‘t happening, so even if I lean towards Powell not making a cautious starting 25bp cut only (which doesn‘t „admit“ convey failure to cut earlier), but to take the risk of 50bp cut (listening to the calls to cut by this much) as it is too great to simply ignore.
It all illustrates extreme uncertainty of the moment. Yes, I lean towards Powell trying to solve the conundrum via dovish conference and dot plot if he doesn‘t deliver on the 50bp – and thanks to the excessively bullish positioning supported by job market weakness, I favor the „there is no one left to sell to“ reaction (25bp would make interest rate and income plays being hit, and it also increases general uncertainty about future cuts vs. if it were done now to make up for lost Jul).
Being ready for him delivering on 50bp would only accentuate the reaction of „sell the news“, because most are positioned for that outcome precisely.
See also bonds already declining premarket, which only adds to the mechanics described above – and the necessity of 50bp cut positioning actually, and room for disappointment.
All essays, research and information represent analyses and opinions of Monica Kingsley that are based on available and latest data. Despite careful research and best efforts, it may prove wrong and be subject to change with or without notice. Monica Kingsley does not guarantee the accuracy or thoroughness of the data or information reported. Her content serves educational purposes and should not be relied upon as advice or construed as providing recommendations of any kind. Futures, stocks and options are financial instruments not suitable for every investor. Please be advised that you invest at your own risk. Monica Kingsley is not a Registered Securities Advisor. By reading her writings, you agree that she will not be held responsible or liable for any decisions you make. Investing, trading and speculating in financial markets may involve high risk of loss. Monica Kingsley may have a short or long position in any securities, including those mentioned in her writings, and may make additional purchases and/or sales of those securities without notice.
Recommended Content
Editors’ Picks
AUD/USD: Strong resistance lies at 0.6300
The marked sell-off in the US Dollar allowed AUD/USD to regain strong upside traction and reach multi-day highs in the area just below the key 0.6300 barrier at the beginning of the week.
EUR/USD: Bulls need to clear 1.0400 on a convincing fashion
In line with the rest of the risk-associated complex, EUR/USD managed to regain marked buying pressure and flirted with the area of three-week highs around 1.0430 on Monday.
Gold remains focused on all-time highs
Gold stays in positive territory above $2,700 on Monday as the improving risk mood makes it difficult for the US Dollar to find demand. Markets await US President Donald Trump's speech at the inauguration ceremony.
Solana Price Forecast: Are US traders dumping Bitcoin and XRP for SOL?
Solana (SOL) price stabilized near the $250 support level on Monday, having declined 10% from its all-time high over the last 24 hours.
GBP/USD stays defensive below 1.2200, awaits Trump 2.0
GBP/USD struggles to gain traction and trades slightly below 1.2200 in the second half of the day on Monday. Markets' nervousness ahead of US President-elect Donald Trump's inauguration drag the pair lower despite a broadly weaker US Dollar.
Trusted Broker Reviews for Smarter Trading
VERIFIED Discover in-depth reviews of reliable brokers. Compare features like spreads, leverage, and platforms. Find the perfect fit for your trading style, from CFDs to Forex pairs like EUR/USD and Gold.