Hold the Press, the Monetary Policy Printing Press That Is!

While suggesting external economic stress around trade uncertainty have risen making a stronger case for a Federal Reserve pre-emptive rate cut ” If you see weakness, it’s better to come in earlier rather than later,” he didn’t precisely come across as a policymaker eager to pull the rate cut lever, at least by 50bp in July anyway.
Stephen Innes
Hold the press, the monetary policy printing press that is!

But in perhaps a defining inward-looking view of the FOMC policy framework, at least on the dove scale, St Louis Fed James Bullard, arguably the most dovish FOMC member told Bloomberg TV

He favours a 25-point reduction as “insurance” given below-target inflation and slowing growth and walking down some of the more dovish views in the markets

So, with the markets showing signs of being as taut as tightly coiled spring, the release valve popped as Powell and Bullard’s comments did little to appease concerns over growth and trade discord. Equities fell, Treasuries advanced, and with the USD strengthening against the Euro, Gold fervid rally came off the boil. Traders are dealing with so many crosscurrents, and with positioning very much stretched, they were very prone to the Fed’s shaking the trees.

Trade Talks

Reportedly the U.S. is willing to suspend the next round of tariffs on an additional $300 billion of Chinese imports while Beijing and Washington prepare to resume trade negotiations, people familiar with the plans said

Still, The U.S. won’t accept any further conditions on tariffs as part of reopening negotiations and suggesting that the U.S. will keep existing trade tariffs in place to ensure China compliance. So, we are back to the issue of bridging ubiquitous Trust Gap between both superpowers, and that, I suspect, is a bridge too far for the foreseeable future.

Oil Markets

Oil prices went ballistic after the API The American Petroleum Institute reported late Tuesday that U.S. crude supplies dropped by 7.5 million barrels for the week ended June 21,

Oil prices have been squeezing higher on escalation tensions in the Middle East. But with late-day draws showing up in the API report, this is a strong signal for the energy market. The report goes a long way to alleviating both demand concerns and with back to back weekly draws, especially today eye-catching draw and could put to rest memories of those grim reaper counter season builds that weighed on prices earlier in the month.

Gold Market

Gold positioning was flushed as the bullion plummeted to $1412 as both Powell and Bullard walked back some of the market overly zealous dovish inference. Despite equity market falling, Gold sensitive to both US interest rates and the USD was clear, but I suspect the length of speculative positions had a lot do with the rapid selloff. But with uncertainty over the outcome of the US trade talks still in the balance, Gold was quickly bought on the dip. I indeed uncertainty around this weekend G-20 continues to drive the Gold bus as the meeting between Presidents Trump and Xi will arguably have the most significant impact on shaping Gold near term direction given the meeting outcome will have a far-reaching effect on all risk assets.

Currency Market

It was a strong night for the USD, helped by Fed Chair Powell seeming less decided about a rate cut in July, and arch-Dove Bullard saying that he didn’t see the case for a 50bp reduction. From when I got in 5 AM Singapore, gold was down 70bp, and GBP down ~60bp as Britain’s Conservative Party leadership candidate Boris Johnson said he favoured a hard exit date of Oct. 31.

Oil was a standout performer, up 1.5%, and if the rally continues, it might help the oil currencies outperform the USD but so far nothing but worth taking a risk if oil holds this morning.

Asia FX

We could expect Asia currency to struggle a bit today for the knock effect for rising Iran tension and both Power and Bullard walking down the dovish market expectations.

More on that after the China Fix as we remain on “Yuan Yuatch.”

This article was written by Stephen Innes, Managing Partner at Vanguard Markets LLC

Don't miss a thing!
Discover what's moving the markets. Sign up for a daily update delivered to your inbox

Latest Articles

See All

Expand Your Knowledge

See All
The content provided on the website includes general news and publications, our personal analysis and opinions, and contents provided by third parties, which are intended for educational and research purposes only. It does not constitute, and should not be read as, any recommendation or advice to take any action whatsoever, including to make any investment or buy any product. When making any financial decision, you should perform your own due diligence checks, apply your own discretion and consult your competent advisors. The content of the website is not personally directed to you, and we does not take into account your financial situation or needs.The information contained in this website is not necessarily provided in real-time nor is it necessarily accurate. Prices provided herein may be provided by market makers and not by exchanges.Any trading or other financial decision you make shall be at your full responsibility, and you must not rely on any information provided through the website. FX Empire does not provide any warranty regarding any of the information contained in the website, and shall bear no responsibility for any trading losses you might incur as a result of using any information contained in the website.The website may include advertisements and other promotional contents, and FX Empire may receive compensation from third parties in connection with the content. FX Empire does not endorse any third party or recommends using any third party's services, and does not assume responsibility for your use of any such third party's website or services.FX Empire and its employees, officers, subsidiaries and associates, are not liable nor shall they be held liable for any loss or damage resulting from your use of the website or reliance on the information provided on this website.
This website includes information about cryptocurrencies, contracts for difference (CFDs) and other financial instruments, and about brokers, exchanges and other entities trading in such instruments. Both cryptocurrencies and CFDs are complex instruments and come with a high risk of losing money. You should carefully consider whether you understand how these instruments work and whether you can afford to take the high risk of losing your money.FX Empire encourages you to perform your own research before making any investment decision, and to avoid investing in any financial instrument which you do not fully understand how it works and what are the risks involved.