Forex news for North American trading on June 10, 2020
- US stocks close mixed but off highs
- Gold runs higher and above trend line resistance on hourly chart
- Six things we learned from Powell and the FOMC
- WTI crude oil futures settle at $39.60
- Powell Q&A: We're not thinking about raising rates, we're not even thinking about thinking about raising rates
- Powell opening statement: We're strongly committed to using all our tools
- US dollar gets the dovish message. Here's the press conference playbook
- Side-by-side: What changed in the FOMC statement
- FOMC central tendencies and dot plot for projected rates. Fed projects rates to remain at current levels through 2022.
- The FOMC full statement for the June 2020 meeting
- Federal Reserve to buy Treasuries and MBS 'at least at the current pace'
- Fed could formalize QE program
- The emotion in the market are off-the-charts
- Major European close lower for the 3rd consecutive day
- Mnuchin: 'Definitely' believes another stimulus bill is needed
- Weekly US oil inventories +5720K vs -1850K expected
- US 10-year yields in danger of falling back into the April-May range
- ECB's de Guindos says May survey show some signs of bottoming out
- Barnier: Relationship with Britain wont' be the same as EU's with Canada and Japan
- Data from Starbucks is worrisome for the reopening story
- BOE's Bailey says will have to consider some reform of non-bank sector after COVID
- US May CPI +0.1% y/y versus +0.3% expected
- The AUD is the strongest and the USD is the weakest
Worried about a V shape recovery and the Fed tightening? Worried that come the end of the year, GDP will be rebounding at record pace and inflation might be picking up from all the Fed stimulus?
Think again...
The Fed Chair Powell expressed it bluntly by saying in his post FOMC presser,
"We're not thinking about raising rates. We're not even thinking about thinking about raising rates".
Is that like the 2nd derivative?
When you are not even thinking about, thinking about, except to think about talking about not even thinking about, thinking about, you get the clear idea that the Fed is not even close to thinking about raising rates. So stop thinking about it. OK?
In all seriousness, the Fed before the crisis was desperate to see rates get up to the 2% inflation target, and once there, they were willing to tolerate being above the target level to make up for the time spent below it.
The CPI data today with core inflation at 1.2%, and YoY inflation at 0.1%, underscores the uphill battle toward reflation that would prompt the Fed to act.
The FOMC central tendencies for core PCE inflation, has the Fed looking for 0.8% in 2020, 1.6% in 2021 and 1.7% in 2022. That despite GDP moving up 5% in 2021. The bad is the fed also sees unemployment at 9.3% at the end of the year, and at 6.5% at the end of 2021. Those numbers are not like the 3.5% that existed pre-Covid and failed to ignite inflation.
If the Fed it was willing to tolerate inflation above 2% before Covid and other headwinds, it's going to be a long time to reach that benchmark post Covid.
As such, the Fed in its projections for future rates sees the Fed funds rate at 0.1% (the current rate) until at least 2022 (and likely longer).
The impact on the market saw
- US 10 year yield (which was looking to test 1% just last Friday) trade at 0.733% or down -9.2 basis points near the close. The 2-10 year spread shed 6 bps today to 56 from 62.2 basis points at the close last night.
- The tech heavy Nasdaq index moved higher, but the broader S&P index and the not broad Dow 30 industrial average thought better of the rotation into the weaker indices that drove the market last week and into Monday's trading. Both those indices fell for the 2nd day in a row. The Nasdaq - on the other hand - closed at record levels and a close above 10K for the first time . Financials were hurt with Wells Fargo and Citigroup coming under the most pressure (down -8.95% and -6.12% respectively).
- Gold took it's clue from lower rates and surged. The precious metal is trading up $20.51 or 1.2% at $1735.94.
- In the forex, the USD was the weakest of the major currencies with the dollar losing the most vs the CHF. It was kind of a weird ranking of the majors today with the CHF and JPY higher but the USD lower. Usually they are around each other. The AUD was higher but the NZD was marginally lower vs the majors. Weird.
Overall, we know where the Fed stands for now, and to as far as we can see. How all that translates in the other markets, including FX, might take some more time to figure out.
