The Daily Update - Data and Panto

The last two Fed speakers on Friday before the blackout period ahead of the Fed’s meeting next week were Bullard, a non-voter, and voting Governor Brainard. Bullard, a dove, who has been constant in calling for restraint in rate hikes said he sees ‘no purpose in inverting the yield curve to try to be pre-emptive on inflation’. Brainard noted ‘that some tailwinds to the US economic outlook are fading’, though flagged that the labour market remains strong.

The interesting point to come from recent Fed speakers is the apparent swing from a pre-planned trajectory for rates to a more data dependent stance. The market appears to have changed its stance as well looking at the reaction to recent data releases. For the last two years data needed to surprise meaningfully on the downside to force a pause in the gradual tightening cycle, but now it would seem that the data needs to outperform in order to get the market to believe that the Fed will push on to and beyond estimates of neutral. This is a big change in the markets analysis of the outlook for the Feds so-called ‘dot plot’ for rate hikes come the turn of the year, although a hike next week is still odds-on with a 70.6% probability.

It was like a panto at the OPEC meeting with a speculative ‘oh yes they will, oh no they won’t’ and calls of ‘they are behind you’. However, in the end, a last-minute agreement was reached with a larger cut than the market was looking for. In total, the agreement was for 1.2million barrels a day (mb/d) with OPEC members at 800mb/d and non-OPEC members including Russia at 400mb/d. The market had feared that the relentless pressure from President Trump on Saudi Arabia to let prices fall further could have led to no agreement, but as the curtain came down oil jumped over $4 a barrel.

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