There is noteworthy likelihood for the Federal Reserve to decide for an interest rate increase this week given that the latest U.S. employment data exceeded expectations once again. The Nonfarm Payrolls (NFP) report released by the U.S. Department of Labour showed that the number of new jobs created during February increased to 235,000. This was the best performance of the last seven months and the data will most probably urge Federal Open Market Committee (FOMC) members to consider voting in favour for a rate hike. A separate report by the Department of Labour showed that the unemployment rate decreased slightly from 4.8% to 4.7%. The prospe...
The major averages continue to set record highs, which provides further evidence that Wall Street is becoming more complacent with the growing dichotomy between equity prices and the underlying strength of the U.S. economy. When investors view the Total market cap to GDP ratio, it becomes strikingly clear that economic growth has not at all kept pace with booming stock values in the past few years. In fact, this key metric, which oscillated between 50-60% from the mid-seventies to mid-nineties, now stands at an incredible 130% The reason for this huge discrepancy is clear: massive money printing by the Fed has led to rising asset prices but a...
Expectations High For Rate Hike Markets do not like surprises. If the Fed raises interest rates at Wednesday’s FOMC meeting, it is not likely to be placed in the unexpected category. From The Financial Times: “Investors are placing a near 100 per cent chance of a Federal Reserve interest rate hike later this month – the first tightening of monetary policy under the presidency of Donald Trump.” Wednesday’s Fed extravaganza features a press conference and updated forecasts from FOMC members. Rare And Rapid Shift In This Market Indicator This week’s stock market video covers a rare shift that has only occurred a handful of times ove...
Last week, GBP/USD ended the cycle from 02/02/2017 peak which unfolded as a double three Elliott wave structure with a FLAT in the Y leg. Pair slightly exceeded 123.6 Fibonacci extensions (1.2145) of the first 3 swings lower from 2/2 peak before making a push higher today. With the bounce seen today, it has become clearer that pair has ended the cycle at least from 2/24 (1.2570) high at least and as dips hold above 1.2132 low, the pair can extend into the bounce. In the near-term, the pair ended 3 waves bounce and it’s expected to pullback lower against the recent low 1.2132. The pair should hold above that level for 1 more leg higher a...
I have recently begun to spend a fair amount of time explaining the difference between a “good model” and a “bad model;” it seemed to me that this was a reasonable topic to put on the blog. The difference between a good model and a bad model isn’t as obvious as it seems. Many people think that a “good model” is one that makes correct predictions, and a “bad model” is one that makes bad predictions. But that is not the case, and understanding why it isn’t the case is important for economists and econometricians. Frankly, I suspect that many economists can’t articulate the difference between a good model and a bad mode...
The rate hike is coming. But what does it mean for markets? We start with the big upcoming event and then continue to the slippery nature of oil prices before previewing other events in the Ides of March. Fed fever: The NFP cemented the rate hike but the US dollar dropped. What happened? Moving forward, can we expect a hawkish hike or a dovish one? How many hikes will we see in 2017? We tackle these questions and try to provide some answers. Crude Crash: Oil prices tumbled down quite rapidly. It seems that barrels of oil were sitting on a barrel of explosives and the match finally came to burn them. We analyze the supply/demand balance as w...
Good Monday morning and welcome back. To be sure, this week’s meeting of Janet Yellen and her merry band of central bankers will be the focal point for the markets. In case you’ve been sleeping under a rock for the past month, note that the markets are expecting the Fed to raise rates on Wednesday. However, the key will be the statement that accompanies the announcement as well as the updated “dot plot,” which details what each FOMC member thinks about the future of interest rates. So while we wait, let’s review my key market models and indicators – to make sure we recognize what “is” happening in the market. The State of the ...
This week all eyes will be on the Fed because of its expected interest rate hike and the messaging that will accompany its policy decision. But credit markets should also be focused elsewhere, because credit growth has been decelerating across a wide array of markets for months now. And this trend has not let up in recent months, despite the Fed’s optimism about labor markets. The big outlier is consumer lending. Charts on the relevant categories are below. Why it matters: The economy is not necessarily accelerating, despite the Fed’s rate hikes. Credit growth is a key determinant of economic growth because spending on cre...
? Feb Nonfarm reports 235K jobs added to U.S. economy, but market expected more ? Hawkish Draghi comments aid EUR/USD to highest since Feb, at 1.07 ? Higher bond yields drag S&P500, Dow, NASDAQ to losses ? Oil prices slide 9.3% weekly on crude buildup A tense trading week ended with upsized volatility on Friday, as markets prepare for the home stretch ahead of the Fed’s rate announcement, due Wednesday. The day saw a strong Nonfarm Payrolls figure celebrating 235K jobs added to the U.S. economy during the month of February, and Unemployment receding to 4.7%. However, the ADP employment print, scoring a juggernaut +298K jobs gain on Wedn...
The Fed’s dot plot chart released in December said the central bank could hike rates three times in 2017. Just three weeks back, no one thought the Fed would hike rates in March. However, the consensus still existed back then that the Fed would hike rates three times in 2017. But most experts believed the Fed would press the button after the details of the Trump fiscal plan are revealed. Fast forward three weeks and the March rate hike is almost a done deal… courtesy of the hawkish talk by Yellen & Co. Monthly chart The metal was rejected at $1263 (monthly 50-MA) in late February as the talk of a March rate hike gathered pace. Over th...