Ian Reynolds
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Overnight
Economic Indicators Released Overnight
China cut interest rates and the FED holds.
The People’s Bank of China said on Wednesday it would make a half-point cut to the banks’ reserve requirement ratio, its benchmark interest rate, and release 1tn yuan (£103.6bn) into the banking system.
Pan Gongsheng, the governor of the People’s Bank of China, said China would also cut a key interest rate by 0.1 percentage point.
Pan said the “moderately loose” measures were a response to a global economy “full of uncertainties, with intensified economic fragmentation and trade tensions”.
China to cut interest rates in response to trade war with US [Guardian]
This was starkly in contrast with Comrade Powell still looking through the back window
Breakdown
- Heightened uncertainty
- Economy solid
- Inflation above objective
- The risks of higher unemployment and higher inflation appear to have risen
- Q1 GDP swing complicated by tariff-driven imports
- Sharp decline in business and consumer sentiment
- The labour market not a source of inflationary pressures
- Inflation expectations higher (tariffs)
The Fed is actually tasked with three goals:
- Maximum employment
- Stable prices
- Moderate long-term interest rates
The last one is never mentioned, but is legislation. This mandate was formalised in the Federal Reserve Act, requiring the Fed to effectively promote these objectives. The specific date of this amendment was November 16, 1977
So the FED skated over mandate 3 as it set drove rates to zero over many years, distorting the money system and creating inflation. I have the feeling that having got that so wrong, they are quick to hike and slow to cut because of this. And that is going to be a big problem for the global economy (and Trump!).
Despite much speculation, the FED buying $15B in 10 year notes and $20B in 3's, is it holding steady on it's balance sheet, as it deals with maturities. Not saying it's a good thing, it's just not QE.
Old Lady tonight
Bessent is having talks with the Chinese deputy over the weekend in Switzerland. Both sided have downplayed it's significance but it's still a minor positive for markets.
US Equities
Breaking
Corporate America Plans Record Stock Buybacks as Turmoil Mounts [Bloomberg]
Commodities
Oil whipped around by Trump threatening sanctions on counties buying Iranian Oil (China) and then OPEC increasing supply, now has given us another shorting level. The market can't support the current price without news shocks.
SPOT BRENT Daily
Bitcoin
BTC grinding higher and suddenly within reach of 100k. Above 100k retail suddenly get interested and cash may well go out of equities and into BTC.
BITCOIN / USD Daily
Equities
US equities higher not because of the FED but because of corporate buybacks / earnings season. We're nearly at the point where we can say lower highs and definitely need to see that big lower low before we can say it's a bear market.
S&P Daily
Bonds
Chinese 10 year yield down back down to the all time low and testing support. Looks likely to breakdown and how long before talk is of negative long term rates?
China 10 Year Government Bond Yield Daily
Foreign Exchange
Aussie still holding up but that's a bull trap and unconfirmed break up. A break lower would see price back to below 0.6000.
AUD / USD Daily
Economic Indicators Today
