Commodities

Fed Turns Dovish In June, Sparks Chaos Everywhere

Fed Turns Dovish In June, Sparks Chaos Everywhere

The Fed left interest rates unchanged during its June FOMC meeting, exactly as we previewed and exactly as the markets expected. According to most analysts, commentators, and in some part the financial markets themselves, just about every aspect of the June FOMC event was more dovish than had been anticipated.

Unsurprisingly for us though, as we had already warned of an indecisive Fed; a once credible central bank which had inherited the tendency to troll markets left, right and center.

We maintain our stance that the Fed will remain indecisive, further loose confidence about positive momentum in the economy, and thereby adhering more to a 'wait and see' rather than a  'do and adjust' policy.

Largest NFP Miss Ever Kills June Fed Hike

Largest NFP Miss Ever Kills June Fed Hike

When we first saw the 38,000 print, we thought it was an error with our news feed. But no, the U.S. economy added only 38,000 non-farm jobs in May, the lowest since September 2010, and the biggest miss on record. It's really hard to overstate how morbidly bad May's payrolls were. It is, however, commensurately easy to kiss a June rate hike by the Fed a sweet goodbye.

This report was so ugly that we feel it leaves almost no room for an alternative interpretation. Specifically, one of forgetting about a June rate hike. The Fed is almost certainly not going to hike later this month.

With the addition of May's payrolls, we are outright bearish the U.S. dollar and will be looking for good opportunities to gain some short exposure. We are of course fully ready to stop dead in our tracks and turn on a dime, as must be expected when dealing with such troll-worthy elements.

April FOMC Minutes Put June Hike Back On Table

April FOMC Minutes Put June Hike Back On Table

First it was the April FOMC statement that turned out to be more dovish than hawkish, and then it was the April NFP report that missed expectations badly, busting market expectations for a June rate hike.

However as regular readers and subscribers to our journals will know, we believed that despite soft economic data and cautious/dovish Fed language, there was still a good chance for a Fed hike in June. The tides turned this week upon the release of the April FOMC minutes, and very abruptly so.

A hawkish turn was something we warned about in the preceding days before the release of the April Fed minutes. It was also one of the risks we highlighted here, and here, under uncertainties regarding monetary policy.

April NFP Misses Big, June Fed Rate Hike Busted

April NFP Misses Big, June Fed Rate Hike Busted

Yellen, we have a problem. April's jobs data was a disaster (as we had forewarned) and markets are starting to get properly concerned this time, judging by the way in which they reacted. A June rate hike by the Fed now seems less likely than ever before, with the Fed Funds futures market implying a mere 4% chance of a hike next month when the FOMC reconvenes to decide on the future of the U.S. economy.

The start of May is really turning out to be a summer of shocks, which is why even Bill Gross could possibility foresee the advent of QE being launched by the Fed — Helicopter money.

The April NFP report released Friday missed the headline expectation by 40,000 jobs coming in at 160,000, or the lowest since September 2015 when the U.S. saw only 145,000 jobs added.

You Can't Trade This

You Can't Trade This

Last week we wrote about how we flipped from bearish to bullish in a span of a few days, and how we were right about our last call, albeit for a few days before it all fell to pieces courtesy of central bank inspired ire. You know what, screw all of that because we're on the sidelines. As we write, we have but a few small positions open in the market, but those are event specific plays.

Bottom line, we don't see how it's plausible to bet on short and medium term moves in today's markets. Everywhere you look there is choppiness the likes we haven't seen since August last year, where the story then was about Chinams forces devaluation of the yuan.

Told Ya So...

Told Ya So...

Exactly 6 days ago, we publicly said that we were short term bullish risk assets and were sitting on the fence for the medium term. We'd previously been bearish the week before but flipped sides on a turn of a dime. We also stated that we were in the precipice of going bullish for the medium term, and our biases were going to be shaped by the week's price action.

Fast forwarding to this past Friday's close, it seems that we were right on our call. Readers will know that this isn't the first time we've been right on our market calls. On 25 October 2015, we called the bottom in the U.S. stock market.

Reiterating last Monday's bullish call, we're now short and medium term bullish. Bullish level 90%. Trade accordingly.

Turning On A Dime...

Turning On A Dime...

Turning on a dime, flipping sides as and when the markets call for a change. As traders, we never fall prey to the syndrome of becoming emotionally bonded to one position or one view, or "falling in love" with a trade so to speak. It's a toxic mindset and a habit amateurs unknowingly embrace, and it'll be the death of them sooner or later.

Last Wednesday we wrote that we were still bearish risk assets. By early Friday, we wrote on social media that we had turned short term bullish and were sitting on the fence. Our positions reflected those view; we were already out of our short SPX position by mid-Wednesday and were net flat, playing watchmen.

Still Bearish...

Still Bearish...

We've been bearish since the start of this year. But we'll have to confess, that did escalate quickly. Into today's snippet we lay forth very briefly our premise for being short risk assets and long quality and liquidity. Recall that just a week ago, we beggared the notion of 2016 being the Year of The Bear. Fast forward a week later, our directional bias hasn't changed one bit, but we're more confident in levering up our betas after what we've thus far seen.

We are bearish, still bearish, and will be trading accordingly.

2016 The Year Of The Bear?

2016 The Year Of The Bear?

Say hello to the bear. It ain't over folks, and there is reasonable suspicion that this rout could spiral into what we think might just be the perfect storm. What a week it has been in the markets! It was the worst first 5 trading days of any year in recorded history for almost all stock indices across the world. The S&P 500 crashed nearly 6%, while Chinese equities were crucified when the fuse was lit during the first few hours of Monday's trading following another disappointment in China manufacturing PMI.

Could this get worse? We reckon so. In today's Snippet, we discus why.

Stand Aside! The Bull Is Out

Stand Aside! The Bull Is Out

We're bullish. Are you? Since the lows seen in late August, we had been playing it safe. Risk, as we call it, most commonly refers to equities and the carry trade. We're now bullish risk in general, and we've many reasons for that. We'll talk about some of them in today's snippet. The bull is out, and you'd better stand aside especially if you're short.

We've been long equities since the middle of last week. We're also long the Aussie dollar against other selected currencies. We were long gold but got shaken out too early in hindsight. Our gross exposure is on the heavy side. We're obviously betting on direction here. There are certain markets we prefer over others and will be capitalizing on both the continuation of the re-risking trade besides others.

Again, we're fully willing and ready to flip sides on a turn of a dime, as and when the markets tell us we should. We aren't in love with our positions, you should never be.

But until then, we're not fighting this bull. We're riding it.