Actionable market insights delivered weekly
Categories
AI
Asset Allocation
Big Tech
Books
Bubbles
Charlie Munger
China
Commodities
Consumer Confidence
Consumer Spending
Credit
Cycles
Debt
Discounted Cash Flow
Earnings
Economic Cycles
Employment
Equity Risk Premium
ETFs
Fed Reserve
Finding Value
Forecasting
Generative AI
Geopolicitics
Gold
Geopolicitics
Lessons
Macro/Econ
Magnificent Seven
Geopolicitics
Monetary Policy
Money Supply
Nvidia
oil
Precious Metals
Property
Quantitative Easing
Rates & Bonds
Real GDP
Real PCE
Recession
Retail Sales
Risk
S&P500
Sahms Rule
Soft Landing
Stocks
Tariffs
Trade
Trump
US 10-Year Yield
Valuations
VIX
Warren Buffett
Yield Curve
Bond Market Agrees with the Fed
Two months ago – the bond market was at odds with the Fed. Fixed income markets felt the Fed were going to be forced to cut rates as many as three times this year. For e.g., the gap between the US 2-yr yield and the Fed funds rate was in excess of 100 basis points. At the time I questioned who would be right? Bonds or the Fed? Fast forward to today and the gap has closed considerably… bonds have now realigned with the Fed’s way of thinking; i.e. expect higher for longer
Market Cheers ‘Strong’ Jobs Report
Payrolls rose 339,000 for May. That was well above the 190,000 expected – and what seems like a robust report. Is the economy really that strong? The devil is always in the details. From mine, I think the Fed will likely pause on a rate hike this month despite the so-called ‘upside surprise’. For example, there is some ‘soft’ data in the report – soft enough for the Fed to not pull the trigger. Wage growth slowed and the unemployment rate ticked higher. Good news from the Fed’s lens.
Fed Likely to Pause (for now)
With the debt ceiling deal behind us – markets will now focus on the next FOMC meeting. It’s widely expected the Fed will pause on any rate hikes in June – especially given some of the underlying weakness in the jobs data. However, the market is not ruling out further increases later this year. I also take a look at AI boom in the market… call it “BoomGPT”. Invest with optimism but do it with your eyes open.
Could $1.1 Trillion in ‘T-Bills’ Suck Out Liquidity?
Over the weekend, financial media reported a deal in principle to raise the debt ceiling. Based on all reports, the deal sets a two-year spending cap, kicking in October 1. Now if Washington DC agrees to at least slow its spending – they’re likely to be doing it during an economic slowdown. And this could have a near-term impact on economic growth and the valuations of risk assets. What’s more, if Treasury are permitted to issue $1.1 Trillion in fresh T-bills – what will that do to liquidity? Will banks deposits start looking for a (higher return) home?