This has become the norm in the post-QE era. In the evolving geopolitical conflicts, the market has more reason to focus on the possibility of the Fed cutting interest rates than on the negative impact and casualties caused by large-scale conflicts; since the conflict incidents over the weekend, we have seen a series of Fed speeches that are clearly dovish:
Vice Chairman Jeff Jefferson cited "awareness of tightening financial conditions"
Dallas Fed's Logan said, "A rise in the term premium could help the [Fed] cool the economy"
Atlanta Fed's Bostic said rates are "sufficiently restrictive" and high enough to "achieve the [Federal Reserve's] 2% inflation goal."
SF Fed's Daly says "5% will not be the new neutral rate" and rising bond yields could replace rate hikes
Finally, the Wall Street Journal’s Timiraos (Fed mouthpiece) published an article overnight titled “Rising bond yields could extend the Fed’s pause in rate hikes,” rounding out the Fed’s dovish tone to start the week.
With the apparent shift in Fed policy, investors have covered short positions and gone long on short-term bonds. The 10-year yield has fallen 15 basis points from the high after the release of non-farm payrolls data, and SPX futures have also risen from short-term lows. 3.5%. Powell is expected to speak at the Economic Club of New York on October 19. If he further confirms his turn to dovish, the market may usher in a new bullish trend stage.
Economic data also supported the dovish narrative, with the number of businesses saying "credit is harder to get" jumping to the highest level since March, according to the NFIB survey, while the Fed's survey of consumer expectations showed the median long-term inflation expectation fell 0.2%. To 2.8%, the Federal Reserve will release the somewhat outdated FOMC meeting minutes tonight, but its impact may be downplayed before Thursday's CPI data is released. Investment banks generally expect CPI to increase by 0.3% month-on-month. Goldman Sachs believes that due to weak second-hand car prices and Housing inflation is stable, there are downside risks to the data, and as expectations turn dovish, the hurdles for a return to hawkishness have been raised, and a >0.4% CPI increase would likely be needed to reverse the recent market strength.
On the cryptocurrency front, prices have continued to struggle over the past week, and despite various moves across the macro asset class, cryptocurrency volatility has remained subdued, with trading slowing as the bear market continues to develop, and Etherum gas fees have fallen back to all-time lows Nearby, the BTC to ETH ratio is back to a one-year high as BTC regains dominance during a prolonged bear market.
To add insult to injury, the Wall Street Journal reported that Islamist militant groups such as Hamas, PIJ, and Hezbollah have been funding their operations through cryptocurrencies, raising over $140 million in the past two years. This overtly negative coverage along with the ongoing FTX/SBF trial certainly did not help boost sentiment. Perhaps it will take a dovish Fed to reverse our fortunes in the short term.
