The Daily Update - Trump Slow, Fed Confusing

So the result of the Stratton Street sweep stake as to the timing of President Trump’s reaction to the Fed 25bp rate cut last night, drum roll……..3 hours and 17 minutes after the Fed announcement (3 hours and 7 minutes after my guess) is the winning ticket with a “Powell let us down” tweet.

The Fed cut rates for the first time in a decade although there were two dissenters, Rosengren and George; they also announced they will stop their balance sheet runoff two months ahead of schedule now in August. However, there was conflicting messages in the press conference where Chairman Powell described the cut as a “mid-term policy correction” and intended to “insure against downside risks from weak growth and trade uncertainties” only then to comment that he was concerned for the risks to global growth, manufacturing and below target inflation. This caused a stormy session for bond yields and the stock market. Indeed the Treasury curve flattened as the long bond rallied 3bp while two year yields are this morning 6bp higher than they were yesterday morning.

In regard to the runoff of the balance sheet, this means they will start reinvesting maturing Treasury securities, which is thought to be about $15bln in August and $13bln in September. This will increase their add-on purchases at auctions and also decrease the Treasuries funding needs by the same amount. They will also start investing proceeds from maturing Mortgage Backed Securities (MBS) of about $20bln a month into Treasuries via open market operations, all helping to alleviate the funding requirements of the government.

As to the future outlook from the Fed and the chances for a further September cut, it would appear we are again data dependent with the Non-Farm Payrolls release tomorrow and today's ISM and the manufacturing PMI the first key reports on show. At this juncture we are 50:50 on a September rate cut but we would expect bond yields to be lower at year end than they are today. September could be very interesting, my birthday, the restart of trade talks and the September 18th Fed gathering plus we should all be over our post-holiday blues.

In the meantime, happy holidays and happy markets is the forecast.

Please read this important information before proceeding. It contains legal and regulatory notices relevant to the information on this site.

This website provides information about Stratton Street Capital LLP ("Stratton Street"). Stratton Street is authorised and regulated by the UK's Financial Conduct Authority. The content of this website has been prepared by Stratton Street from its records and is believed to be accurate but we do not accept any liability or responsibility in respect of the information of any views expressed herein. The information, material and content provided in the pages of this website may be changed at any time by us. Information on this website may be out of date and may not be updated or removed.

The website is provided for the main purpose of providing generic information on Stratton Street and on our investment philosophy for the use of financial professionals in the United Kingdom that qualify as Professional Clients or Eligible Counterparties under the rules of the United Kingdom Financial Conduct Authority (the "FCA"). The information in this website is not intended for the use of and should not be relied on by any person who would qualify as a Retail Client. Products and services referred to on this website are offered only at times when, and in jurisdictions where, they may be lawfully offered. The information on this website is not directed to any person in the United States. The provision of the information on this website does not constitute an offer to purchase securities to any person in the United States (other than a professional fiduciary acting for the account of a non-U.S person) or to any U.S. person as such term is defined under the Securities Act of 1933, as amended.

The website is not intended to offer investors the opportunity to invest in any Alternative Investment Fund ("AIF") product. The AIFs managed by Stratton Street are not being marketed in the European Economic Area ("EEA") and any eligible potential investor from the EEA who wishes to obtain information on the AIFs will only be provided with materials upon receipt by Stratton Street of an appropriate reverse solicitation request in accordance with the requirements of the EU Alternative Investment Fund Managers Directive ("AIFMD") and national law in their home jurisdiction. By proceeding you confirm that you are not accessing this website in the context of a potential investment by an EEA investor in the AIFs managed by Stratton Street and that you have read, understood and agree to these terms.

No information contained in this website should be deemed to constitute the provision of financial, investment or other professional advice in any way. The website should not be relied upon as including sufficient information to support any investment decision. If you are in doubt as to the appropriate course of action we recommend that you consult your own independent financial adviser, stockbroker, solicitor, accountant or other professional adviser. Past performance is not necessarily a guide to the future. The value of investments and the income from them may go down as well as up. An application for any investment or service referred to on this site may only be made on the basis of the offer document, key features, prospectus or other applicable terms relating to the specific investment or service.

Where we provide hypertext links to other locations on the Internet, we do so for information purposes only. We are not responsible for the content of any other websites or pages linked to or linking to this website. We have not verified the content of any such websites. Such websites may contain products and services that are not authorised in your jurisdiction. Following links to any other websites or pages shall be at your own risk and we shall not be responsible or liable for any damages or in other way in connection with linking.

By using this site, you should be aware that we may disclose any information that we hold about you to any regulatory authority to which we are subject, or to any person legally empowered to require such information.

This website uses cookies to improve user experience, by clicking the "I Accept" button below means you consent to the use of cookies on our website.