Investors Continuing to React to Fed’s New Tone

June 21, 2021

Markets had expected the FOMC meeting last week to push back against concerns related to this year’s supply delay-driven rise in inflation and were surprised when that opportunity wasn’t fully utilized. The dot-plot diagram of individual member interest rate path preferences shifted the likely timing of the first hike in the federal funds rate from 2024 to 2023, and St. Louis Fed President Bullard in a later speech through out 2022 as a possibility. Whatever the precise timing, it will follow a number of downward adjustments to the pace of bond purchases, which seem increasingly likely to commence later this year.

As it so happens, Chairman Powell is scheduled to testify tomorrow before a House subcommittee on the central bank’s ongoing response to the Covid pandemic, so more clarification on how much Fed thinking has evolved could occur then. Fed NY District President Williams speaks publicly today, and so does ECB President Lagarde.

In overnight market action, the dollar slipped back 0.2% against its DXY weighted index after a very strong performance last week. Compared to specific currencies, the dollar lost 0.5% overnight against sterling, 0.4% vis-a-vis the kiwi, 0.2% versus the euro and Australian dollar, and 0.1% relative to the Swiss franc and Mexican peso. But the dollar held steady versus the yen and loonie and strengthened 0.6% to a record high of 8.7817  Turkish lire.

In today’s first trading session of summer around Pacific Rim  equity markets, share prices tumbled 3.3% in Japan, 1.8% in Australia, 1.5% in Taiwan,  1.1% in Hong Kong, and 0.8% in Singapore. In Europe, by contrast, most markets recovered somewhat, including a 0.8% rise so far in the German Dax, and U.S. stock futures are also up a bit.

One of today’s biggest financial market moves has been a slump of around 7% in the price of a bitcoin, which fell below $33k. The prices of gold and oil, however, rose 0.8% and 0.3%.

Ten-year U.S. Treasury, German bund and British gilt yields are each steady.

Australian retail sales ticked up only 0.1% in May following monthly advances of 1.3% in March and 1.1% in April.

Belgian consumer confidence printed four points higher at +8 in June, best since February 2001.

Italy’s current account surplus widened to a 4-month high of EUR 6.654 billion in April and compared to a deficit a year earlier of EUR 1.992.

Polish PPI inflation accelerated a full percentage point to a 112-month high of 6.5% in May, and Polish industrial production that month was 29.8% greater than in May 2020.

Copyright 2021, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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