BLUF: The bottom line is not that the bond market is wrong, rather only too early. Fears running amuck...fundamental economics presently do not support an immediate rate cut by a “Data Dependent Fed”; and without a doubt NOT Four-Rate-Cuts by December.
***No Rate Cuts followed by Negative Sentiment at the G20 (Xi will not meet with T in Japan, they have proven agreements mean nothing, they will break them, no one wins a trade war but this is not a trade war) we could see the SPX back at the DEC18 Lows (2350), just another buying opportunity*** TBD!!!
Macro: The economic data continues to come in at moderate growth but no where close to recession...watch housing to see where the economy goes. The business cycle is the housing cycle! Come September along with lowered mortgage rates...housing will be rolling!
Over the Horizon: Mandatory US Debt Ceiling and the US Treasury cannot write new UST...holding at max 22 Trillion until OCT as the soonest...look for a show-down-battle between Mr. T and Congress in order to raise the debt ceiling...think govy shutdown! Accelerating US deficits, weak foreign Central Bank demand for USTs & increasing incentive for foreign private sector investors to NOT buy USTs (rising USD FX hedging costs) is a toxic combination that will likely soon force the Fed to either inject significant USD liquidity or suffer the consequences (lose control of the price of money in the US, crash global markets & spike the USD ...add to this Powell will not cut rates prior to the G20 summit at the end of June without knowing the outcome!
***No Rate Cuts followed by Negative Sentiment at the G20 (Xi will not meet with T in Japan, they have proven agreements mean nothing, they will break them, no one wins a trade war but this is not a trade war) we could see the SPX back at the DEC18 Lows (2350), just another buying opportunity*** TBD!!!
Macro: The economic data continues to come in at moderate growth but no where close to recession...watch housing to see where the economy goes. The business cycle is the housing cycle! Come September along with lowered mortgage rates...housing will be rolling!
Over the Horizon: Mandatory US Debt Ceiling and the US Treasury cannot write new UST...holding at max 22 Trillion until OCT as the soonest...look for a show-down-battle between Mr. T and Congress in order to raise the debt ceiling...think govy shutdown! Accelerating US deficits, weak foreign Central Bank demand for USTs & increasing incentive for foreign private sector investors to NOT buy USTs (rising USD FX hedging costs) is a toxic combination that will likely soon force the Fed to either inject significant USD liquidity or suffer the consequences (lose control of the price of money in the US, crash global markets & spike the USD ...add to this Powell will not cut rates prior to the G20 summit at the end of June without knowing the outcome!
FED:
The essence of the risk management approach to monetary policy is that stable growth and inflation are best achieved by digesting the incoming economic data and making small adjustments to the Fed’s target federal funds rate — preemptively if possible — to keep growth, employment, and inflation on target while safeguarding the stability of the financial system.
Commentariat:
“The mistake made by the Bernanke and Yellen Feds was to rely excessively on aggressive quantitative easing to get an economic recovery going. While this did produce an economic recovery, it did so at the long-run cost of seriously distorting financial market asset prices, thereby setting up the stage for the next economic bust.”
“A rate cut might briefly (and not sustainably) help the market, but mostly the move would buy time for the bond market and keep debt service low (that's the main reason Government wants low rates). Actually they'd rather have a period of inflation, so they can repay dept with 'devalued greenbacks', as I'd term their desire on-occasion. It's always amusing to see reporters ponder 'why' the Fed wants a little inflation; but that's what it comes down too in an era with embedded high-debt psychology, which itself is a macro issue.”
"This is a Fed that wants to insure that the recovery will continue," they said. "The goal will be to talk about the need to ease policy but underscore that a recession is not around the corner."
Note:
The Fed begins its two-day policy meeting on Tuesday, and will issue a new statement and economic projections at 2 p.m. (1800 GMT) on Wednesday. Powell's press conference is scheduled to begin Wednesday at 2:30 p.m. (1830 GMT)
If Fed officials don't collectively push their rate view down, as markets expect and the White House demands, it will be up to Powell to explain why.
Outcome:
***No June Cut > Dovish Fed Speak > G20 > July Rate Cut***
The Debt Ceiling Fight could UPEND it ALL, they have 6-8 Weeks until you could see a Flash Crash if the DC-INCOMPETENTS do not pull there collective heads out of there Ass…TBD! (Monetary Liquidity Flows is the connective tissue of the Global Central Bank System...UST's!
"We're the Fukawi! We're the Fukawi! WHERE THE FUCK ARE WE?!"