It read the minutes of its March 19 as a more dovish position by the Fed. At least today, it seemed that the market's fear that rate hikes are coming sooner rather than later was allayed.
"Stocks rocketed and bonds rallied at the shorter end of the curve, as traders viewed the Fed's minutes from its March 19 meeting as a sign the Fed would keep its easy rate policy in place for a long time even as it unwinds its bond-buying program."
"The market's saying they were dovish. The initial reaction (to the meeting) was hawkishness," said John Canally, investment strategist and economist with LPL Financial. "We're now back to focusing on the data. The other key out of this was a large chunk of them said it was the weather. The question came up. Is it the weather? Is it something else? This clearly says it was weather."
So the market got back some of its losses after the BLS report last Friday where the numbers while not missing estimates by much disappointed the market who wanted a huge beat to the upside.
http://diaryofarepublicanhater.blogspot.com/2014/04/todays-jobs-report-in-retrospect-bears.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+DiaryOfARepublicanHater+%28Diary+of+a+Republican+Hater%29
Janet Yellen's words were read as bearish back in March with the implication that interest rates were going up soon.
"In the minutes, the Fed noted: "A number of participants noted the overall upward shift since December in participants' projections of the federal funds rate included in the March (projections), with some expressing concern that this component of the (projections) could be misconstrued as indicating a move by the Committee to a less accommodative reaction function."
"Fed Chair Janet Yellen, in her first post-Federal Open Market Committee press briefing, rocked the markets that day by saying the Fed could move to raise the fed funds rate six months after it ends its bond-buying program. "
"That drove yields sharply higher in the two-year and five-year part of the Treasury curve, as markets braced for a more aggressive Fed than had been expected. Those yields reversed course sharply after the Fed minutes Wednesday—falling to levels they were trading at before the March 19 meeting. The five year was yielding 1.62 percent after the 2 p.m. ET minutes release, off from its high of the day of 1.71 percent."
So the market loves all of this as well as the Fed going off of the unemployment target in the Evan's Rule. However, for how long will the market be pleased? What happens if there's a miss on tomorrow morning's unemployment claims report? Indeed, not everyone is convinced the glass if half full on Fed policy:
"But LaVorgna said the Fed may be too negative, and policy will be dictated by the economy's strength. He expects second-quarter growth of 4.2 percent, up from 2 percent in the first quarter."
"The Fed has over-engineered monetary policy. The message is getting garbled, and we're one big employment report away, as we've been for a while, from the market totally throwing this minutes out the door and the Fed changing its tune, at least on the margin," he said.
Speaking of which, I see that China's exports fell by much more than expected-6.6 percent.
http://www.cnbc.com/id/101567091
What impact might that have on market sentiment? Of course, while I'm looking at these numbers with more than one hat on: I've got my economist hat on, my conerned hat on. my Republican Hater hat on and not the least my market participant hat on as I've documented in the past.
http://diaryofarepublicanhater.blogspot.com/2014/04/todays-jobs-report-in-retrospect-bears.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+DiaryOfARepublicanHater+%28Diary+of+a+Republican+Hater%29
Today the market didn't quite do what I needed it to do-for me. I have a BAC $17 call which expires in a couple of weeks and the Citi $44,50 puts which expire in early May. Before lunch C was looking good-for my purposes not the bank's and its investors-as the stock was again pushing to fall to $46 but it snapped back after the Fed minutes to finish over $47.
BAC snapped back much less gaining only slightly on the day-just $.18 to finish at $16,62. It remains to be seen whether I should have cashed in my gains on C early-at this point my 50 puts were worth $2200-I paid a total of $1350 or so on it. Still I feel like it can get under $46 don't think it's unrealistic at all that it hit $45 soon.
Now just like the Neoeconomists, whether I'm right all depends on my assumptions. If they're right-that C is going to be a sell for the short term thanks to the fact that it wasn't able to get permission from the Fed to increase their dividend. My reasoning is that for now at least the Street may see it as not as strong as the other banks who did get permission-BAC and Goldman Sachs. If this is true then a $45 dollar handle is not unreasonable at all-it was trading at $50 when the news came out. As for BAC a jump of just $.25 cents tomorrow should give me some nice gains in my 50 $17 calls. I find it hard to believe that the worst case scenario will happen-C rises and BAC remains depressed with a $16 handle but we'll see. Today this is basically what happened.
UPDATE: There's a feel that these minutes were not a straightforward recounting of the March 19 meeting but a deliberate attempt to push back on the negative market reaction that followed the 19th.
"Clearly, Janet Yellen and the other doves on the Committee were startled by the market reaction to the March 19 statement (and her "6 months" gaffe) and decided that the minutes needed to push back against that market move. I have not traditionally been a big conspiracy theorist with regard to the Minutes. I had believed that the Minutes were generally a straightforward recount of the FOMC discussion, but in this case, the Minutes appear to have been crafted after the fact with an eye toward unwinding the perceived change in the policy outlook that took place on March 19," wrote Stephen Stanley, chief economist at Pierpont Securities."
http://www.cnbc.com/id/101571672
"Stocks rocketed and bonds rallied at the shorter end of the curve, as traders viewed the Fed's minutes from its March 19 meeting as a sign the Fed would keep its easy rate policy in place for a long time even as it unwinds its bond-buying program."
"The market's saying they were dovish. The initial reaction (to the meeting) was hawkishness," said John Canally, investment strategist and economist with LPL Financial. "We're now back to focusing on the data. The other key out of this was a large chunk of them said it was the weather. The question came up. Is it the weather? Is it something else? This clearly says it was weather."
"Next up on the economy is Thursday's weekly jobless claims, expected at about 320,000, off slightly from 326,000 last week. There are also import prices released at 8:30 a.m. ET, and retailers report monthly chain store sales."
http://www.cnbc.com/id/101568708So the market got back some of its losses after the BLS report last Friday where the numbers while not missing estimates by much disappointed the market who wanted a huge beat to the upside.
http://diaryofarepublicanhater.blogspot.com/2014/04/todays-jobs-report-in-retrospect-bears.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+DiaryOfARepublicanHater+%28Diary+of+a+Republican+Hater%29
Janet Yellen's words were read as bearish back in March with the implication that interest rates were going up soon.
"In the minutes, the Fed noted: "A number of participants noted the overall upward shift since December in participants' projections of the federal funds rate included in the March (projections), with some expressing concern that this component of the (projections) could be misconstrued as indicating a move by the Committee to a less accommodative reaction function."
"Fed Chair Janet Yellen, in her first post-Federal Open Market Committee press briefing, rocked the markets that day by saying the Fed could move to raise the fed funds rate six months after it ends its bond-buying program. "
"That drove yields sharply higher in the two-year and five-year part of the Treasury curve, as markets braced for a more aggressive Fed than had been expected. Those yields reversed course sharply after the Fed minutes Wednesday—falling to levels they were trading at before the March 19 meeting. The five year was yielding 1.62 percent after the 2 p.m. ET minutes release, off from its high of the day of 1.71 percent."
"Now the bond market is saying: 'We get it. You're not going to raise rates quickly in the future, so over a five-year time period, rates shouldn't be this high," said George Goncalves, head of rate strategy at Nomura Americas. The 10-year yield barely budged after the minutes, trading at 2.69 percent, just slightly lower but in the middle of a range it was in all day.
No doubt the Sumner MM view is that the Fed did well today as shown by the move in interest rates and expectations.
http://www.cnbc.com/id/101566954
So the market loves all of this as well as the Fed going off of the unemployment target in the Evan's Rule. However, for how long will the market be pleased? What happens if there's a miss on tomorrow morning's unemployment claims report? Indeed, not everyone is convinced the glass if half full on Fed policy:
"But LaVorgna said the Fed may be too negative, and policy will be dictated by the economy's strength. He expects second-quarter growth of 4.2 percent, up from 2 percent in the first quarter."
"The Fed has over-engineered monetary policy. The message is getting garbled, and we're one big employment report away, as we've been for a while, from the market totally throwing this minutes out the door and the Fed changing its tune, at least on the margin," he said.
Speaking of which, I see that China's exports fell by much more than expected-6.6 percent.
http://www.cnbc.com/id/101567091
What impact might that have on market sentiment? Of course, while I'm looking at these numbers with more than one hat on: I've got my economist hat on, my conerned hat on. my Republican Hater hat on and not the least my market participant hat on as I've documented in the past.
http://diaryofarepublicanhater.blogspot.com/2014/04/todays-jobs-report-in-retrospect-bears.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+DiaryOfARepublicanHater+%28Diary+of+a+Republican+Hater%29
Today the market didn't quite do what I needed it to do-for me. I have a BAC $17 call which expires in a couple of weeks and the Citi $44,50 puts which expire in early May. Before lunch C was looking good-for my purposes not the bank's and its investors-as the stock was again pushing to fall to $46 but it snapped back after the Fed minutes to finish over $47.
BAC snapped back much less gaining only slightly on the day-just $.18 to finish at $16,62. It remains to be seen whether I should have cashed in my gains on C early-at this point my 50 puts were worth $2200-I paid a total of $1350 or so on it. Still I feel like it can get under $46 don't think it's unrealistic at all that it hit $45 soon.
Now just like the Neoeconomists, whether I'm right all depends on my assumptions. If they're right-that C is going to be a sell for the short term thanks to the fact that it wasn't able to get permission from the Fed to increase their dividend. My reasoning is that for now at least the Street may see it as not as strong as the other banks who did get permission-BAC and Goldman Sachs. If this is true then a $45 dollar handle is not unreasonable at all-it was trading at $50 when the news came out. As for BAC a jump of just $.25 cents tomorrow should give me some nice gains in my 50 $17 calls. I find it hard to believe that the worst case scenario will happen-C rises and BAC remains depressed with a $16 handle but we'll see. Today this is basically what happened.
UPDATE: There's a feel that these minutes were not a straightforward recounting of the March 19 meeting but a deliberate attempt to push back on the negative market reaction that followed the 19th.
"Clearly, Janet Yellen and the other doves on the Committee were startled by the market reaction to the March 19 statement (and her "6 months" gaffe) and decided that the minutes needed to push back against that market move. I have not traditionally been a big conspiracy theorist with regard to the Minutes. I had believed that the Minutes were generally a straightforward recount of the FOMC discussion, but in this case, the Minutes appear to have been crafted after the fact with an eye toward unwinding the perceived change in the policy outlook that took place on March 19," wrote Stephen Stanley, chief economist at Pierpont Securities."
UPDATE 2.0: Wall Street is trying to spook the Fed here into taking it easy on them with the new regulations on funding.
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