SignalPlus Macro Research Report (20231011): The Fed has turned dovish, are macro assets about to see a bullish trend?
This has become the norm in the post-QE era. In the evolving geopolitical conflicts, the market has more reason to focus on the possibility of the Federal Reserve cutting interest rates, rather than the negative impact and casualties caused by large-scale conflicts; since the conflicts occurred over the weekend, we has seen a series of clearly dovish Fed statements:
Vice Chairman Jeff Jefferson mentioned awareness of tightening financial conditions
Dallas Fed’s Logan said, “Rising term premiums could help [the Fed] cool the economy”
Atlanta Fed Bostic says rates are sufficiently restrictive and high enough to achieve [the Feds] 2% inflation target.
SF Fed Daly says 5% will not be the new neutral rate and rising bond yields may replace rate hikes
Finally, the Wall Street Journal’s Timiraos (Fed’s mouthpiece) published an article overnight titled “Rising bond yields may extend the Fed’s pause in interest rate hikes,” completing the Fed’s dovish tone that began on Monday. .
With the obvious change in Fed policy, investors have covered short positions and gone long short-term bonds. The 10-year yield has fallen 15 basis points from the high after the release of non-farm payrolls data, and SPX futures have also risen from short-term lows. 3.5%, Powell is expected to speak at the Economic Club of New York on October 19. If he further confirms his turn to dovish, the market may usher in a new bullish trend stage.
Economic data also supported the dovish narrative, with the number of businesses saying credit is harder to get jumping to the highest level since March, according to the NFIB survey, while the Feds survey of consumer expectations showed the median long-term inflation expectation fell 0.2%. To 2.8%, the Federal Reserve will release the somewhat outdated FOMC meeting minutes tonight, but its impact may be downplayed before Thursdays CPI data is released. Investment banks generally expect CPI to increase by 0.3% month-on-month. Goldman Sachs believes that due to weak second-hand car prices and Housing inflation is stable, there are downside risks to the data, and as expectations turn dovish, the hurdles for a return to hawkishness have been raised, and a >0.4% CPI increase would likely be needed to reverse the recent market strength.
On the cryptocurrency front, prices have continued to struggle over the past week, and despite various moves across the macro asset class, cryptocurrency volatility has remained subdued, with trading slowing as the bear market continues to develop, and Etherum gas fees have fallen back to all-time lows Nearby, the BTC to ETH ratio is back to a one-year high as BTC regains dominance during a prolonged bear market.
Adding to the apparent negative coverage, the Wall Street Journal said Islamist militant groups such as Hamas, PIJ and Hezbollah have been funding their operations through cryptocurrencies, raising more than $140 million in the past two years As well as the ongoing FTX/SBF trial certainly not helping to lift market sentiment, it may take a dovish Fed to turn our fortunes around in the short term.
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