Tag Archives: economics

Classical Tuesday

30 minute atr

daily pivots

weekly pivots

upside retracements

downside retracements

regression channels

price support and resistance
On the economic calendar:-
 
07:45 ICSC-Goldman Store Sales
08:30 Durable Goods Orders (Consensus 1.6% v Prior 3.5%)
08:55 Redbook
09:00 S&P Case Shiller HPI (Consensus 0.8& v Prior 1.0%)
10:00 Consumer Confidence (Consensus 79.0 v Prior 78.1)
          Richmond Fed Manufacturing Index (Consensus 10 v Prior 13)
          State Street Investor Confidence Index
11:30 4 Week Bill Auction
13:00 2 Year Note Auction
POMO:-
 
10:15 - 11:00 Outright Treasury Coup[on Purchases between $2.25 - $3.00 billion

What’s that lever over there marked “rates” do?

Although the FOMC’s discussion of slowing or ending its Large Scale Asset Purchase (LSAP) program have induced a collective fear of a rapid pace of tightening and rate increases, leading to a steeper yield curve, it is important in moments like this to remember exactly how monetary policy works. At the present time, the Fed primarily relying on two tools to handle monetary policy: rate policy and quantitative policy. It uses these two tools to achieve its dual mandate of price stability (currently defined as a 2% symmetrical inflation target as measured by the core personal consumption expenditures deflator) and full employment. At the time of this writing, rate volatility appears to have been triggered by discussions of pulling back on the quantitative throttle by slowing the rate at which the Fed increases the size of their balance sheet. That is reducing the rate at which the Fed is easing, not tightening, although one has to wonder if, in en environment that shrugs off $85B of monthly easing, less easing than expected becomes de facto tightening.

Rate policy is primarily used as a tool to disincentivise borrowing by making it more expensive. Traditionally this was done by changing the Fed Funds target rate. Assuming a negatively sloped demand curve for loans, a higher rate of interest will reduce the quantity of loans demanded and reduce the money created by money multiplication (monetary inflation) in the banking system by limiting velocity. Ultimately, this leads to a decrease in credit-driven Consumption and/or Investment, which puts downward pressure on inflation. Until 5 years ago, FF rate targeting was primarily achieved through a mix of Open Marker Operations and changes to the discount window rate, setting a ceiling or upper bound on the Effective FF rate. In October 3, 2008 the Fed started using a new tool, Interest on Excess Reserves to (IOER), to effectively put a floor on Effective Fed Funds, the success of which has been mixed, at best.

YoY % Credit Growth

Figure 1: YoY % Credit Growth

Therefore, in order for rate increases to be necessary, inflation must approach or exceed the symmetrical target of 2% during a period of close-to or full employment. In contrast to prior cycles, the Fed has “guided” market participants as to the meaning of these measures by disclosing what is colloquially referred to as the “Evan’s Rule,” a threshold (not a trigger) which suggests unemployment to fall below 6.5% and the 2% symmetrical target to be met or breached before the target FF rate is increased.

YoY % Core PCE Price Change

Figure 2: YoY % Core PCE Price Change

Given that core PCE inflation is significantly below its symmetrical target of 2% (Figure 2), unemployment remains elevated and employment growth tepid, and annualized nominal GDP growth has decelerated since Q1 2012 and is has barely registered 3.1% for 3 consecutive quarters, we believe the risk of rapid rate increases in the near future is very low absent a very sudden and very sharp increase in demand for credit-driven Consumption or Investment.

YoY % GDP Growth

Figure 3: YoY % GDP Growth

We are not doomsayers, but it is important for participants to understand how rate policy works and why it is used. While the hand-off from quantitative policy to rate policy is a prerequisite of any change in the FF target rate (quantity or price but not both), it provides us no clue as to when this change will take place. In other words, the role of LSAPs as a signaling tool for rate policy is limited to letting us know when the rate regime has been begun again, not when it will be mobilized. Until we face loan demand that is high enough to fuel an accelerating expansion of the money supply, not only will the rate lever remain unengaged, but there will be no credible risk to price stability to warrant the use of it--we could be at the zero-bound for a long, long time.

Figure 4: KTF Neutral Policy Rate

Figure 4: KTF Neutral Policy Rate

Additionally, from the quantitative angle, many market participants claim that any rate increases will be impossible while the system remains flooded with reserves and starved of collateral, exemplified by the FF-IOER spread and GC-IOER spread or the house favorite here at Contrarian Corner, the KTF Neutral Policy Rate Rule (Figure 4), which despite talks of impeding taper keeps showing the neutral policy rate at new lifetime lows week after week (and, recently, into the uncharted waters of negative nominal rates). Many participants with expertise far beyond mine have opined that, with IOER failing to act as a credible floor, rate increases are actually impossible until reserve pumping not only stops, but a large quantity are mopped op or the size of the economy grows into the new and much-expanded monetary base. Sensei KTF would pose the question, "how many CBs have ever exited?" (spoiler alert: none) however, if the mopping of reserves was ever to become necessary in anticipation for a rate-increase, any credible attempt would begin with the Fed's latest gender-bender toy, the Full Allocation Fixed Rate Reverse Repo Facility (FAFRRRF, or "Death Star" to the initiated), which promises to to provide the invisible floor IOER failed to and bridge us as we take the leap of faith across the impassable ravine from quantity to price. I don't know about you, but I'll have my chalice filled with whiskey, if you don't mind.

Classical Tuesday

 

the 30 minute atr trend suggests bullishness

daily pivots
looking for a break out/down.

upside retracements

downside retracements

looking at the daily

240 minute regression channels

price support and resistance levels
On the economic calendar:-
 
07:45 ICSC-Goldman Store Sales
08:30 Producer Price Index (Consensus 0.2% v Prior 0.3%)
          Retail Sales (Consensus 0.0% v Prior 0.2%)
08:55 Redbook
09:00 S&P Case-Shiller HPI (Consensus 0.7% v Prior 0.6%)
10:00 Business Inventories (Consensus 0.3% v Prior 0.4%)
          Consumer Confidence (Consensus 75.0 v Prior 79.7)
          State Street Investor Confidence Index
11:30 4 Week Bill Auction
13:00 5 Year Note Auction
POMO:-
10:15 - 11:00 Outright Treasury Coupon Purchases between $1.25 - $1.75 billion

 

Classical Friday

30 minute atr trend

daily pivots

upside retracements

downside retracements

regression channels

price support and resistance
On the economic calendar:-
 
08:30 Durable Goods Orders (Consensus 2.5% v Prior 0.1%)
09:55 Consumer Sentiment (Consensus 74.8 v Prior 75.2)
10:00 Wholesale Trade (Consensus 0.4% v Prior 0.1%)
POMO:-
None today

 

Classical Thursday

30 minute atr trend

daily pivots

upside retracements

upside price extensions

downside retracements

regression channels

price support and resistance
On the economic calendar:-
 
08:30 International Trade (Consensus $-40.0 B v Prior $-39.1)

Jobless Claims (Consensus 335 K v Prior 358 K)
08:58 PMI Manufacturing Index Flash (Consensus 52.7 v Prior 52.8)
09:45 Bloomberg Consumer Comfort Index
10:00 JOLTS (Consensus 3.725 M v Prior 3.689 M)
10:30 EIA Natural Gas Report
11:00 Kansas City Fed Manufacturing Index
3 Month Bill Announcement
6 Month Bill Announcement
2 Year Note Announcement
5 Year Note Announcement
7 Year Note Announcement
13:00 30 Year TIPS Auction
16:30 Fed Balance Sheet
Money Supply

POMO:-

10:15 - 11:00 Outright Treasury Coupon Purchases between $2.75 and $3.50 billion

Classical Wednesday

 

30 minute atr trend - keeping you on the right side of the trade

daily pivots

upside retracements

downside retracements

regression channels

price support and resistance
On the economic calendar:-
 
07:00 MBA Purchase Applications
08:30 Import and Export Prices (Export Prices - Consensus -0.1% v Prior -0.5%)
                                                 (Import Prices -  Consensus 0.2% v Prior 0.0%)
09:00 FHFA House Price Index (Consensus 0.8% v Prior 1.0%)
10:30 EIA Petroleum Status Report
POMO:-
 
10:15 - 11:00 Outright Treasury Coupon Purchases between $2.75 - $3.50 billion

Classical Tuesday

 

30 minute atr trend

daily pivots

upside retracements

downside retracements

regression channels

price support and resistance
On the economic calendar:-
 
07:45 ICSC-Goldman Store Sales
08:30 Employment Situation (Consensus 185,000 v Prir 169,000)
08:55 Redbook
10:00 Construction Spending (Consensus 0.4% v 0.6%)
          Richmond Fed Manufacturing Index
10:30 EIA Natural Gas Report
11:30 4 Week Bill Auction
POMO:-
 
10:15 - 11:00 Outright Treasury Coupon Purchases between $1.25 - $1.75 billion

Classical Monday

3- minute atr trend
240 minute atr trend
daily pivots
weekly pivots
upside retracements
downside retracements
working on a new regression channel
price support and resistance
On the economic calendar:-
 
08:30 Chicago Fed National Activity Index
10:00 Existing Home Sales (Consensus 5.30 M v Prior 5.480 M)
10:30 EIA Petroleum Status Report
11:00 4 Week Bill Announcement
11:30 3 Month Bill Auction
          6 Month Bill Auction
POMO:-
 
10:15 - 11:00 Outright Treasury Coupon Purchases between $3.00 - $4.00 billion
 
Speaking today:-
 
08:00 Charles Evans

Classical Friday

30 minute atr trend
daily pivots
upside retracements
6th time was the charm
downside retracements
working on a new channel
price support and resistance levels
On the economic calendar:-
 
10:000 Leading Indicators
POMO:-
 
10:15 - 11:00  Outright Treasury Coupon Purchases between $1.25 - $1.75 billion
 
Speaking today:-
 
14:00 Charles Evans
16:30 Jeremy Stein

Classical Thursday

 

30 minute atr trend

daily pivots

upside retracements

downside retracements

working on a new channel

price support and resistance levels
On the economic calendar:-
 
08:30 Housing Starts (Consensus 0.913 M v Prior 0.891 M)
          Jobless Claims (Consensus 330 K v 374 K)
09:15 Industrial Production (Consensus 0.4% v Prior 0.4%)
09:45 Bloomberg Consumer Comfort Index
10:00 Philadelphia Fed Survey (Consensus 15.0 v Prior 22.3)
10:30 EIA Natural Gas Report
11:00 EIA Petroleum Staus Report
          3 Month Bill Announcement
          6 Month Bill Announcement
          30 Year TIPS Announcement
16:30 Fed Balance Sheet
          Money Supply
POMO:-
 
10:15 - 11:00 Outright Treasury Coupon Purchases between $2.75 - $3.50 billion
Speaking today
 
08:00 Richard Fisher
12:45 Charles Evans
13:45 Esther George
14:45 Naryana Kocherlakota