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Gut Feeling about Fed June Hike, Perhaps Wrong

by with No Comment AMT MarketsCentral BanksFeatured Highlights

Gut Feeling about Fed June Hike, Perhaps Wrong

I have a distinct feeling the U.S Federal Reserve is going to suggest via their FOMC Statement tomorrow that another increase of the Federal Funds Rate is likely going to happen in June. I could definitely be wrong, but my gut instinct is rumbling.

Inflation Remains a Sincere Problem Per the Fed’s Thinking

Wage data demonstrated last Friday via U.S Personal Income that inflation remains stronger than expected. Yesterday’s ISM Manufacturing Prices reading also spiked to 53.2 versus the expectation of only 49.4. The increases shown within these economic reports will not please the Federal Reserve.

While a hike tomorrow is nearly a certainty, the Forex market remains rather unimpressed with the potential for an increase on the 14th of June. Behavioral sentiment has shown a rather polite USD actually losing momentum the past few days. Caution has seeped into the USD today, but are financial institutions too relaxed regarding a potential hike by the Fed in June?

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USD/AUD 5 Day Chart as of the 2nd May 2023

Reserve Bank of Australia’s Hike Earlier Today Caught Many Folks Unready

The Reserve Bank of Australia’s hike today, may be another sign the U.S Fed will not only hike tomorrow, but in June as well. What are the chances the Federal Reserve hinted strongly to the RBA, that if they wanted to protect the value of the AUD that an increase would be justified in order to guard against the Fed’s rhetoric to come? The Australian hike caught a lot of financial houses and day traders unprepared as the USD/AUD spiked lower this morning, for proof of the surprise simply look at the gap created downward today on the five day chart of the currency pair.

The RBA hiked their Cash Rate by 0.25% from 3.60% to 3.85% while sighting stubborn inflation as a main cause. Nothing is certain, but if the Federal Reserve’s FOMC Statement is rather strong tomorrow and says it will still consider a June increase perhaps we should not be shocked. Central banks do share information with one another.

Early February’s Rhetoric from the Fed wasn’t Treated Seriously at First Glance

Coincidentally, the Fed’s increase in early February was two days before the Non-Farm Employment Change and Average Hourly Earnings were reported on the 3rd of February. On the 1st of February the Federal Reserve warned that inflation remained stubborn, but the market didn’t take their words too seriously as the USD traded rather politely following the anticipated interest rate hike.

However, the USD gained violently the day after when Fed officials began to reiterate the strong tone from Fed Chairman Jerome Powell from the day before. And then stronger than expected jobs numbers followed on Friday. Note, that the Non-Farm Employment Change and Average Hourly Earnings will be published this coming Friday.

The Federal Reserve remains in a difficult position, a hike tomorrow will bring the Federal Funds Rate up to 5.25%, a June hike may not be welcomed by the broad financial markets, particularly equities in the near-term, but people may want to consider the possibility of it happening. Day traders should brace for strong price velocity developing. Tomorrow’s Forex action will be violent for speculators who are not ready, and if the Fed suggests a potential hike to 5.50% in June perhaps we should not be stunned.

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Forex, Interest Rates, the Fed and Conspiracy Politics

by with No Comment AMT MarketsAssetsFeatured Highlights

Forex, Interest Rates, the Fed and Conspiracy Politics

If you have been looking for road signs regarding what the U.S Federal Reserve is going to do next week and trying to get a feel for its rhetoric which will be delivered in the FOMC Statement on the 3rd of May, this week’s U.S data outcomes should be monitored. And as of now the data might be suggesting the Fed will remain aggressive in June.

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GBP/USD One Month Chart

A Fed Funds Rate hike is going to happen on the 3rd of May unless there is a financial catastrophe that suddenly emerges that is nearly cataclysmic. While First Republic Bank wobbling is certainly a problem (Mark Zuckerberg is supposedly a rather large client of the bank), if this entity fails completely it may not cause massive bedlam. The stock has dropped violently, so a collapse should not be a surprise. No, it will not be welcome, but it should not be an unexpected calamity.

The question is how much the U.S government will protect depositors? The large clients who are not insured above the standard 250k USD ratio will want the same benefits that clients of Silicon Valley Bank received in March. Should they be rewarded the same way? The American public may not like the idea of another bailout for the deep pocketed, but there may not be much they can do about it, except to vote the politicians out, but who do you exactly punish?

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First Republic Bank – One Month Chart as of 27th April 2023

What a collapse of First Republic Bank will do is hurt the corporate bond sector in banking again, because it is likely holders of these bonds will be put at the back of the line once again if the U.S government decides to protect big depositors of millions of dollars like Zuckerberg, before it protects bond holders.

U.S Data in Focus and the Allure of a Black Dress with Growth

But I digress, yesterday’s Core Durable Goods Orders statistics came in better than expected. Today Advance GDP will come from the U.S and if this number produces an increase instead of a downturn, the U.S Federal Reserve will have more ammunition to remain aggressive regarding interest rate hike rhetoric. An increase of 0.25% has been calculated into Forex for next week. The USD has done rather well recently, but what is of intrigue is the perception the USD is doing well after the financial markets have seemingly priced in a rate hike on the 3rd of May. Meaning, typically the USD would have started to ebb a bit lower after financial houses put their interest rate outlook into their Forex positions. Yesterday’s better than expected Core Durable Goods Orders leaves the door open for another hike on June the 14th to be precise.

While Core Durable Goods Orders isn’t a sexy statistic, GDP numbers frequently are, and if the growth numbers show up with a stunning black dress on with alluring ‘expansion’ it could send large speculators into a tizzy and make them believe the Fed could increase by another quarter of a point in June. The Fed during its FOMC Statement next week will certainly try to help financial institutions anticipate outlook. The Fed doesn’t need to hold the hand of investors, but it often treats them like children.

Financial houses had largely believed the Fed would hike in May and might raise in June. The notion that a June increase is certain would then put the focus back on the long-term again, and Forex could then break free of its rather consolidated incremental USD strength seen the past couple of weeks. Inflation remains a drum beat that is steady. And while today’s GDP numbers will be important. Tomorrow PCE inflation statistics will be the final nail in the coffin. If growth is stronger than expected today, and inflation numbers remain stubborn tomorrow, the Fed would certainly consider another June increase valid.

On the bright side for day traders is that the cautious choppy air which has circulated the past couple of weeks in Forex is almost done. While steady trends may not reappear for a while, at least near-term outlook will have more clarity by this time next week.

Big Institutions Have Long Term Outlooks and Treat Trading Conditions Differently

Long term outlook is another game as day traders should know and one they cannot easily participate. Long term investors have the money to specialize in assets which are not expecting profits today, but instead have a larger time frame for making money. Deep pockets, patience and the need for less leverage help financial institutions trade in a more stable manner, frequently putting the ‘odds’ in their favor.

The price of Crude Oil is actually behaving politely in recent trading, and its ability to find a mid 70.00’s USD price range is interesting and may help inflation move lower if it can be sustained. If supply of goods can adequately stabilize and global logistics costs come down, inflation could decrease. These factors are part of the long term perspective of financial institutions. Day traders may want to consider this because it could affect behavioral sentiment moving forward.

Higher interest rates from the Fed are causing other currencies to loss value and this has caused increased costs for international manufacturing companies located outside the U.S which frequently have to buy commodities in USD from their converted domestic currencies, this causes inflation. This is a factor not spoken about enough and traders need to consider this within their perspectives too.

The Fed and Perhaps a Conspiracy Theory

If the Fed actually starts to decrease its interest rates, it would help other currencies stabilize. And yes, if the Fed stops increasing interest rates it may actually help weaken global inflation. The Fed has caused import inflation to occur into the U.S. Are they aware of that? It is a good question. The likelihood is a yes, and it has been disregarded, but why? Perhaps there is another reason; does the U.S Fed and U.S government want to cause inflation globally to strike politically at some competitors? This is a different topic………kind of. Conspiracy theory.

While insight regarding the dialogues between the Federal Reserve and U.S government is certainly above my pay grade, one has to wonder about considerations regarding inflation and a stronger USD and its potential effect on China. The Fed increases may be a way of trying to inflict harm economically and in a subtle manner, but this cannot be proven. Perhaps the Fed is unaware of the global conflict being waged.

On another note, Gold remains near 2000.00 an ounce – almost steadily, displaying a certain amount of cautious behavior.

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Gold One Month Chart

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Quick Thoughts for Friday 21st April

by with No Comment AMT MarketsAssetsFeatured Highlights

Quick Thoughts for Friday 21st April

It appears the broad financial markets are producing rather cautious price ranges which day traders should be wary of and this could continue until the 3rd of May. The Federal Reserve will release its FOMC Statement and Federal Funds Rate on Wednesday the 3rd of May. It is likely a quarter of a basis point will be added then, meaning an increase of another 0.25%. The worry for financial institutions is the potential for another Federal Funds hike in June and unease regarding the possible move.

Choppy markets are also happening because of a lack of major U.S economic data the past few days, which has created an air of uncertainty and undefined trends in many assets.

The difficulty of finding a defined trend for day traders can cause them to get eaten alive. Skittish conditions are not good for a majority of retail Forex and CFD traders – and plays into the fact 90% of retail speculators are eventually wiped out. An absence of deep pockets to withstand volatility because leverage is being used too excessively, and an inability to digest overnight ‘carrying charges’ which must be factored in too as ‘costs of trading’ also causes money to disappear – although your broker might try to ‘sell’ this as part of your learning curve while they try to convince you to trade again.

Next week the U.S will see the CB Consumer Confidence report on Tuesday the 25th of April, Thursday will have Advanced GDP and Friday will finish with inflation data. However, it is the week afterwards which is already a large focus. Yes, corporate earnings are being published today and in the coming week too, but many eyes are on the U.S Federal Reserve. Clarity on interest rates is what is desired.

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Gold price the past month of trading as of 21st of April 2023

If you are looking for evidence regarding what ‘smart money’ may be doing, it should be noted the price of Gold remains hovering around 2000.00 USD per ounce. Suddenly the price of Gold has become almost calm, please do not expect this to continue. The rather tight and ‘high’ price range of the precious metal is a potential sign that financial folks still believe that the U.S Fed may remain semi-aggressive in the mid-term, while ‘hoping’ over the long-term lower interest rates are coming.

As traders should know by now, nothing is guaranteed. Trying to understand behavioral sentiment helps.