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Friday Barometer Regarding the BoE Decision and Gold Prices

by with No Comment AMT MarketsAssetsFeatured Highlights

Friday Barometer Regarding the BoE Decision and Gold Prices

The Bank of England’s rate hike of 0.50% cements the notion that global central banks remain steadfastly locked on inflation, and understand politically the implications on the public regarding higher consumer prices which are being experienced. The Bank of England ‘met’ before its Official Bank Rate announcement with corporate bank executives it was whispered, to discuss their concerns regarding the knock on affects of higher mortgage rates to come. However, this did not stop the BoE from being aggressive.

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GBP/USD Three Month Chart as of 23rd June 2023

Is the BoE Move a Sign Regarding the Fed’s Next Decision?

The move by the BoE also is intriguing because the larger than expected hike puts into play the notion the U.S Fed may be raising the Federal Funds Rate in July. The reasoning is based on the idea the Bank of England wants to protect the British Pound from another interest rate hike from the Fed, thus ‘securing’ the value of GBP/USD Forex mechanics.

The U.S Federal Reserve, the BoE and ECB finally seem to have a grasp on import inflation implications. Although higher costs and dynamic pressures on exporting countries like China, India and others that face the gauntlet of these challenges remains critical, because these nations need to raise the costs of manufactured goods internationally when they sell.

Smart Money and the Value of Gold

Let’s talk about ‘smart money’ for a moment surrounding Gold – and please try to hold down your laughter – but the price of the precious metal is interesting and should be monitored even by folks who do not trade the commodity. Gold as of this morning is near the 1915.00 USD ratio.

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Gold Six Month Chart as of 23rd June 2022

On the 4th of May the price of the precious metal momentarily challenged the 2080.00 level. On the 1st of June the price of the commodity was near 1985.00. Do you see a trend here? Please note, Gold isn’t going to zero.

The point to be made is that the build up in the price of the precious metal from the 22nd of November 2022 when Gold was around the 1625.00 USD per ounce level, until early May anticipated the U.S Federal Reserve was going to become more dovish regarding their interest rate polkicy. For consideration look at the price of the USD during this time too, against many major currencies – the value of the USD also started to come down.

‘Smart money’ is showing signs of nervousness certainly since the start of June that more hikes are feared from the Federal Reserve. However, the price of Gold and the USD are not correlating well at this moment. This is a potential sign that Gold and the USD are both within speculative trading zones in which financial institutions are seeking ‘true’ equilibrium and are not comfortable. Fragility in the financial marketplace is likely to be seen until the Federal Reserve Federal Funds Rate announcement late in July. Expect financial institutions to price in their outlooks respectively depending on their outlooks.

Gold and U.S Treasuries: Inverted Interest Rate Implications

Gold definitely fluctuates within daily trading conditions, it is a speculative commodity, but it is also a solid barometer of risk management among the elite. If financial institutions are in favor of buying items like U.S bonds because of their guaranteed short term interest payments (look at the fact U.S Treasuries are mostly inverted – meaning shorter term bond interest rates are paying higher returns compared to longer term bonds) instead of buying Gold as an investment tool.

The Gold and USD Forex dynamics tells us that investment institutions are still very nervous about the Fed potentially raising interest rates a couple of more times this year. July and late this year appear to be reasonable bets. This Fed consideration and concern remains legitimate while looking forward as long as inflation remains elevated in the U.S. However, the Federal Reserve must also feel comfortable they will not kill mid and small sized banks, which by now should have shifted their business practices allowing for slightly higher interest rates to be delivered.

postN14.1

Anticipated Federal Reserve Shop Talk to be Delivered Today

by with No Comment AMT MarketsBehavioral SentimentFeatured Highlights

Anticipated Federal Reserve Shop Talk to be Delivered Today

For what it’s worth, here is my prediction regarding what the Federal Reserve will do today. The Federal Funds Rate will remain unchanged in my opinion. The FOMC Statement may show that the vote actually was debated and not unanimous. The statement is likely to warn that inflation remains stubborn and potentially problematic, meaning the Federal Reserve continues to believe it may have to raise the Federal Funds Rate over the mid-term and again before the end of 2023.

The Forex market has seen the USD get weaker against many major currencies since late May. While financial institutions have seemingly positioned for no increase from the Federal Reserve today, this move has also likely been priced into Forex. Day traders need to understand institutional traders will not be betting on what took place the last three weeks, but are trying to anticipate what will happen into early July and beyond regarding their Forex positions.

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GBP/USD One Month Chart as of the 14th June 2023

Many financial institutions may still be betting the Fed will remain more dovish than the U.S central bank wants to admit, but this is a dangerous perception and could prove costly. Financial institutions are concerned about the Fed because they know the central bank has painted itself into a corner it may not be able to maneuver freely within. The battle to conquer inflation while trying to fuel economic growth is not an easy one. Mixed sentiment abounds regarding the U.S economy depending on who is asked.

Talk of a soft landing and a small recession continues to be heard, this while some analysts warn about a hard drop and darker days ahead. Folks, it is all about timelines and their interpretations, experts warning about brighter or darker days ahead have a tendency to be vague regarding exact moments in time. Everyone has an opinion, and people often have more than one.

In my opinion – my one opinion, the Fed is likely to say that it is not going to raise rates today, but may have to do so in the mid-term. If these were normal times and economic conditions were not suffering from huge spending running amok in Washington and the corporate banking sector wasn’t fragile, the Fed may actually have raised the Federal Funds Rate today to continue to battle inflation deliberately. However, a pause for the moment seems like the logical choice, this while ‘hoping’ inflation continues to diminish. And hope is a key word here. Everyone seems to be hoping. The question financial houses and traders need to decide after the FOMC Statement takes place today is how seriously do they consider the Fed’s remarks.

If they believe the Fed will have to continue to remain neutral regarding its mid and long-term interest rate policy, the USD may soften and incremental selling might be demonstrated. Human instinct tends to be optimistic, which means financial institutions and maybe even the Fed wants to believe inflation will ebb lower. If this happens the USD would weaken further. However, the Fed may have to sound more aggressive than people want, but that would damper the mood of financial institutions – so look for optimistic interpretations to abound with rose colored glasses, even if they are wrong in the long-term.

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Gold One Month Chart as of the 14th June 2023

For evidence of outside barometers, traders may want to look at Gold which has essentially traded between 1940.00 and 1975.00 with a few outliers since the last week in May. The price of Gold has seemingly situated within a consolidated framework the past few weeks. The precious metal may produce a strong move if the Fed shows more dovish behavior today, particularly if financial institutions show more optimism via behavioral sentiment in Forex – meaning if a weaker USD trend continues momentarily Gold could traverse higher.

My prediction and $1.00 USD may get you on a bus. As always caution will be needed if you are trading immediately before and after the U.S Federal Reserve’s rate decision. I advise using a seat belt today consisting of entry price, stop loss and take profit orders via solid risk management, but then again these cautious attitudes should always be practiced by day traders.

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FOMC Meeting Minutes and Key Growth Data Coming this Week

by with No Comment AMT MarketsBehavioral SentimentFeatured Highlights

FOMC Meeting Minutes and Key Growth Data Coming this Week

Monday the 22nd of May, Japan Core Machinery Orders – which will likely have very little impact on the markets – not even the USD/JPY should react too much. Although it should be noted last month’s figure was negative and this month’s result is expecting a better outcome.

Monday the 22nd of May, E.U Consumer Confidence – forecast to produce a negative number, but this statistic doesn’t usually get much of a response in the financial markets unless there is a shocking result.

Tuesday the 23rd of May, E.U French and German Manufacturing and Services PMI, along with the broad E.U results – the manufacturing statistics from France and Germany are expected to come in slightly better than last month’s results but remain in negative territory.

Tuesday the 23rd of May, U.K Manufacturing and Services PMI – traders will watch these results after the bad GDP numbers from Britain almost two weeks ago.

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GBP/USD Three Month Chart as of 21st of May 2023

Tuesday the 23rd of May, U.S Flash Manufacturing and Services PMI – the reports could prove of interest and cause a bit of a tremor in the market, but unless there is a big surprise investors will remain cautious as they anticipate the next day’s potentially big risk events.

Wednesday the 24th of May, U.K Bank of England Governor Bailey – will be speaking at two events and could stir the GBP/USD with his comments on the British economy and inflation.

Wednesday the 24th of May, U.S Treasury Secretary Janet Yellen – will be speaking at a Wall Street Journal event, where she will be listened to for any comments on the ‘U.S debt ceiling” crisis. Yellen is a ‘trained’ speaker and she will try not to scare financial institutions who will have some leaders in attendance.

Wednesday the 24th of May, U.S FOMC Meeting Minutes – the report which will outline the U.S Federal Reserve’s thinking regarding its recent interest rate hike and what it might be considering regarding June could impact the marketplace. The report is published late in the day, but financial institutions will certainly wait for the publication and react. While the FOMC paper is sometimes considered ‘noise’, this report will be important because of the nervous sentiment which exists in markets like Forex and equity indices as they deal with a lack of clarity.

Thursday the 25th of May, U.S Preliminary Gross Domestic Product – the growth (or lack of growth) numbers from the States will be watched intently. A muted projected gain of 1.1% is anticipated by some analysts.

Thursday the 25th of May, U.S Preliminary GDP Price Index – this report will deliver insights regarding inflation in the U.S and should be given some attention by traders.

Friday the 26th of May, Core PCE Price Index – the inflation numbers should be watched. Any surprise above the anticipated 0.3% forecast could cause an affect in the financial markets.

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Economic Data that needs Attention this Week

by with No Comment Central BanksDataFeatured Highlights

Economic Data that needs Attention this Week

Tuesday 8th of May, U.S FOMC Member Speaks – N.Y Federal Reserve President John Williams will talk at the New York Economic Club. N.Y Fed is important regarding monetary policy particularly for financial institutions. Williams words should be given merit. Williams will also be likely listened to for any comments regarding U.S corporate banking health regarding mid-size and smaller institutions.

Wednesday 9th of May, U.S Consumer Price Index reports – three key inflation consumer price statistics will be published including monthly, annual and core monthly changes. The results will be important taking into consideration the manner the U.S Federal Reserve conducted its ‘sitting on the fence’ rhetoric last week, as if looking for an accuse to continue to raise interest rates if inflation remains stubborn or worse continues to climb.

Thursday 10th of May, U.K BoE Monetary Policy Summary and Official Bank Rate – which is expected to produce another increase of 0.25%.

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GBP/USD One Month Chart as of 7th of May 2023

Friday 11th of May, U.K Gross Domestic Product – growth numbers from the U.K are expected to demonstrate economic conditions remain challenging.

Friday 11th of May, U.S Preliminary University of Michigan Consumer Sentiment – a rise in consumer sentiment from this report could add to the confusion and ‘concern’ that financial institutions have regarding the U.S Federal Reserve’s short term monetary policy regarding the prospects for a June increase to the Federal Funds Rate. If the number is weaker than expected this could help ‘pause’ outlooks.

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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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Risk Events Pose Danger this Week

by with No Comment Central BanksDataFeatured Highlights

Risk Events Pose Danger this Week

Monday 1st of May, U.S ISM Manufacturing PMI – weaker than expected Advance GDP results last week make this report of keen interest for investors regarding U.S growth (or recessionary) prospects.

Tuesday 2nd of May, Australia RBA Cash Rate – Reserve Bank of Australia is expected to hold the line regarding borrowing.

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EUR/USD 1 Month Chart as of 30th April

Wednesday 3rd of May, U.S Federal Reserve FOMC Statement and Federal Funds Rate – U.S central bank expected to raise by another 0.25% making key lending mark 5.25%. This number has been digested into the broad markets, what investors want to know is the Fed’s June outlook. Federal Reserve outlook and FOMC Press Conference will move Forex and equities globally. Traders remains suspicious regarding another hike in June.

Thursday 4th of May, E.U ECB Main Refinancing Rate – European Central Bank expected to hike by another 0.25%. Anything different would be a surprise. ECB Press Conference should be rather tranquil.

Friday 5th of May, U.S Non-Farm Employment Change and Average Hourly Earnings – while jobs numbers are always of interest, it is the earnings statistics which should be watched and will give insight regarding inflation and potential actions about Fed’s June considerations.

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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.

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U.S Fed will raise Interest Rates this Week Once Again

by with No Comment Federal Reserve, Interest RatesMajor Global Equity Indices

U.S Fed will raise Interest Rates this Week Once Again

September Federal Reserve Pronouncements on the Calendar

The U.S Federal Reserve will raise their Federal Funds Rate by another 0.75% this coming Wednesday the 21st of September. If they do not it would send a shock wave through the markets, inflation data via Core CPI statistics, which were published nearly ten days ago in the U.S cemented the hike to come.

The hike has already been factored into the global markets. Forex has essentially gone ballistic via a strong USD, the GBP/USD is shown below as an example. The British Pound is now touching lows it has not seen since 1985 against the USD. Speculators may be tempted to trade this week believing they are smarter than the ‘crowd’, and that may be the case – congratulations if you are one of the few, but this may simply be an outcome of luck too. Many retail investors and speculators have been mauled in the current trading environment.

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GBP/USD 1 Year Chart showing new Lows

Investors are Struggling as Clarity is Sought

Indices are struggling, gold is sputtering, U.S Treasury bonds are inverted, cryptos are under scrutiny. The U.S Fed is between the proverbial rock and hard place. Economic conditions promise to stay stormy in the next month and a half too. U.S elections will have an affect on behavioral sentiment. Certainly the Fed’s outlook which will be delivered on the 21st of September will cause turbulence also. A long term view via dividends from the S&P 500 remains a benchmark for investors seeking returns. Short term traders on the other hand must fight through the ‘noise of the experts’.

  • The U.S Fed is nearly certain to raise their key interest rate by 0.75% this week.
  • The key clarity investment houses seek is outlook regarding potential interest rate hikes to come later this year and early in 2023.

Where have the Gurus Gone?

Many self proclaimed gurus who claimed enlightenment only a year and a half ago, and offered their ‘insights’ regarding investment promises to eagerly awaiting traders are now hiding in their safe places and eating their words. Very few assets have proven profitable in the past year. Many investors are not used to the idea of merely preserving money, they have worked on the premise of solid gains made with speculative decisions which have been carried upwards by positive sentiment. Dealing with actual bear markets has not been a shared experience for many in the world of investing the past 13 years and the fresh scars are visible.

The ability to make money in this environment is difficult. The inverted bond yields in the U.S are evidence that folks are putting their money into relatively short term assets and trying to secure some of their capital. Traders can certainly wager this coming week in a variety of ways, but short term positions need to be considered with the knowledge volatility will be part of the terrain. Risk management is essential.

U.S Federal Reserve is in a Difficult Position

The notion that the U.S Federal Reserve will not stop raising their interest rates after the September meeting pronouncements this Wednesday still needs to be digested in many investment spheres. A Fed Funds Rate later this week of 3.25% is almost a 100% certainty. Speculation about a borrowing rate at 4% later this year may be realistic. And the question about how long the ‘transient’ inflation remains – yes, please laugh out loud, is a tough consideration. The outlook remains chilling.

While higher fuel costs have simmered a bit and have come off their highs, energy remains problematic and is having an effect on the costs of logistics, food and manufacturing. Energy concerns will remain the devil within the details. Some may want to look at the ISM Manufacturing data from the States for clues, but its merits remain debated too.

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Words Matter in the Financial World and Noise is Dangerous

by with No Comment Federal Reserve, Interest Rates

Words Matter in the Financial World and Noise is Dangerous

As the financial markets trade in a nervous fashion the amount of ‘noise’ that traders must deal with has increased.

Markets Remain Jittery and Day Traders Pay the Price

The financial markets remain in a nervous state, and this is seen every day via the results from the major equity indices which continue to traverse within the framework of a threatening and potential bear market. Many new traders have not dealt with serious downturns in the financial markets before. Because human instinct is almost always positive, many speculators who participate in the markets tend to be buyers.

However in the past handful of months, many day traders who have been buyers have certainly found a difficult trading environment. Whether they are trying to pursue long positions in equity indices or cryptocurrencies, the speculative landscape has likely cost day traders money and produced trading accounts are negative, or worse simply have been closed.

U.S Federal Reserve Not Making Things Easy

The broad financial markets are likely to remain nervous in the coming months. The U.S Federal Reserve has a major interest rate announcement which will be delivered in the middle of June, and another rate hike of 0.50% is expected. What has the financial world nervous is not the anticipated interest rate hike which has already been digested into the marketplace, but what the Fed will say regarding their outlook regarding additional rate hikes in the summer. The reason why this is unclear is because the economic landscape remains cloudy and hotly debated.

The Federal Reserve has not helped investors because they have largely misread the economic landscape and caused problems because of past statements. Last year the Fed insisted inflation was transitory, meaning that it would soon diminish, this obviously did not happen. Now the best the Fed can do is to hope that inflation becomes less strong and that disinflation occurs. Meaning the U.S central bank is simply hoping it can decrease the rate of inflation.

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Words matter in this trading landscape for investors because the Federal Reserve’s policy has not exactly been met with popular fanfare. Many market participants feel that the Fed has pursued bad economic policy and that they have reacted slowly to data which was abundantly clear regarding supply problems, and the rising cost of production due to climbs in energy prices.

The Biden Administration and Energy Costs

While some in the Biden administration try to point the finger at the Ukrainian war with Russia as the culprit. Most people are not that naïve. Energy prices were on the rise before the war and it can be seen that the bullish trend in the price of crude oil has existed since the Biden administration took power.

President Biden during his recent trip to Japan spoke about inflation caused by rising energy prices that were in ‘transition’. He made it clear that rising energy prices in the U.S are happening because the U.S is following a green environment policy and that the shift in regulatory mandates is driving the costs of energy higher. This combined with the Federal Reserve’s frequent talk about inflation and its desire to raise interest rates has made for a dangerous combination.

Noise will remain at a High Volume

Inflation may come down in the coming months. Demand for certain commodities may erode to some extent. However the cost of energy is probably going to remain high throughout the summer. The additional shadow of mid-term elections in the U.S and the potential for a shift in power in the U.S Congress are going to affect nervous sentiment among financial institutions in the coming months leading right up to November.

Traders need to prepare for noise which will come from pundits as they express their opinions. Speculators who are day traders also have to take into consideration that their short term goals are in direct opposition to that of long term financial institutions. The difference in trading outlooks and monetary capabilities make this a difficult environment for day traders in the current market conditions.

Following short term trends for day traders based on behavioral sentiment is viable. Technical charts can be used to gather short term evidence, but this will not stop the constant threat of reversals and spikes in price velocity from suddenly gathering power and creating momentary bedlam.

Eliminating the noise generating from pundits who can walk away from their statements without any consequences is a must. Unfortunately the comments coming from the Federal Reserve and White House are often hard to ignore and cause reactions in the marketplace; because their words matter even if they sometimes seem to forget what they have said in the past.