. Shifting Fed rhetoric

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Published Jul 19, 2020

. Shifting Fed rhetoric
http://ntvforex.com/news/?id=61226b. . 7 17 2020 6 47 03 AM . . . Core bonds continued to build on their slightly positive momentum. They didn t take guidance from the ECB meeting or from US eco data. Soft Fed speak and fragile stock markets 0.5% were at play. The ECB kept policy unchanged after substantially increasing both the scale and duration of easing measures in June. The current environment is one of elevated uncertainty and significant economic slack with downside risks still prominent. US eco data included positive surprises from June retail sales and July Philly Fed Business sentiment, but weekly jobless claims continue hovering at elevated levels between 1300k and 1566k for the past 6 weeks . Atlanta Fed governor Bostic spotted that worrying development as well. Chicago Fed Evans stressed worries about downside risks and added that policy needs to be positioned towards them. Washington Fed based governor Brainard earlier this week suggested changing the policy stance from stabilization to accommodation. Fed governors are clearly worried about a second economic dip resulting from new lockdown measures as US COVID 19 cases keep reaching daily records. The US yield curve bull flattened with yields sliding by 0.9 bps 2 yr to 2.4 bps 30 yr . German yields fell by 0.1 bp to 2.2 bps with the belly of the curve outperforming the wings. 10 yr yield spread changes vs Germany barely moved. NY Fed governor Williams added to the Fed rhetoric by talking in the direction of boosting forward guidance. Yield curve control or tying it explicitly to economic targets are options. Core bonds are treading water with Asian stock markets mixed. Talk on a new US fiscal stimulus package is gaining traction, but currently lacking bipartisan support. . Today s eco calendar contains July University of Michigan consumer confidence and June housing data building permits housing starts . EU leaders gather in Brussels to discuss the EC s recovery proposal. German Chancellor Merkel put high hopes on the Summit and thinks she ll be able to overcome opposition by eg the Frugal four who disagree on the proposed structure too large amount of grants . Overall, we think that a positive outcome should by and large be discounted. Q2 corporate earnings results are a wildcard for trading. Core bonds are expected to hold momentum with 10 yr yields attracted by approaching support levels. Technically, the US 10 yr yield is drifting to the lower end of the 0.54% 0.78% sideways trading range. The Fed s implicit yield curve control remains at work open ended, unlimited QE . The German 10 yr yield bounced off first support just above 0.50%. . . Download The Full Sunrise Market Commentary

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. Shifting Fed rhetoric

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