Pivot Powell? “Temporary” Cash Added To Banking System Seems Strangely Permanent Under Bidenflation (Will The Fed Break The Market?) Stocks UP Over 1% Today

Will The Fed break the … market?

I love to teach, but my students at Chicago, Ohio State and George Mason would fall asleep when I would discuss repurchase and reverse repurchase agreements (or REPOs and Reverse REPOs). But repos and reverse repos are a critical part of the banking system.

In short, the Repo market is a window into what’s going on behind the scenes.

As Bidenflation soars, and The Fed counterattacks, we see Fed’s repo market remains elevated. Note that The Fed’s balance sheet (orange line) is only slowly being reduced.

Right now, the risk lurking in the shadows is Balance Sheet Runoff. The Fed, the markets, the regulators, have limited experience with the Fed shrinking the balance sheet. Bottom line: there’s a risk that Balance Sheet Runoff will breaking something.

The global stock market is up again today, despite Fed tightening and a war in Ukraine. The Dow is up 1.38% and the S&P 500 is up 1.75%.

Likely cause? Rumors that The Fed and other global central banks will pivot sooner than later.

It is likely that The Fed will pivot to prevent a crash and the stock market in pricing in that pivot.

Bernanke, Yellen and Powell are NOT Paul Volcker. In fact, I am coining a new nickname for Fed Chair Jerome Powell: Pivot Powell.

Forecast for US Recession Within Year Hits 100% in Blow to Biden (Fed Pivot Expected At March 2023 Meeting)

Bloomberg Economics sees near certainty downturn will start
Tightening conditions, inflation, hawkish Fed weigh on outlook

A US recession is effectively certain in the next 12 months in new Bloomberg Economics model projections, a blow to President Joe Biden’s economic messaging ahead of the November midterms.

The latest recession probability models by Bloomberg economists Anna Wong and Eliza Winger forecast a higher recession probability across all time frames, with the 12-month estimate of a downturn by October 2023 hitting 100%, up from 65% for the comparable period in the previous update.

The forecast will be unwelcome news for Biden, who has repeatedly said the US will avoid a recession and that any downturn would be “very slight,” as he seeks to reassure Americans the economy is on solid footing under his administration.

And with that terrible news for the economy, the Fed Funds Futures market is hinting at a March 2023 pivot from The Fed.

The good news? The stock market is up BIG today. Likely because investors feel that the stock market has been oversold. The NASDAQ Composite Index lies beneath the Ichimoku Cloud.

And the NASDAQ is close to the bottom Bollinger Band.

The Empire Strikes Out! NY State General Business Conditions Tanks To -9.1 As Global Yields Plummet

The Empire Strikes Out!

The US Empire State Manufacturing Survey General Business Conditions SA index fell to -9.1 in October, continuing a downward trend along with the downward trend in Fed M2 Money stock growth.

And the global sovereign debt market is showing fear as 10-year sovereign yields drop -10 basis points. The UK 10-year is down -36.8 bps! The US is down only -6.6 bps this morning.

The Empire (State) strikes out.

This One’s Going To Hurt You! US Dollar Continues To Rise, Hurting Investors (US Dollar UP 25.2% With Bidenflation)

This one’s going to hurt you for a long, long time.

Over the past year, the dollar has been on a tear: The U.S. Dollar Index, which measures the dollar’s strength against a basket of foreign currencies, is up 18%. And up 25.2% under 80-year old US President Joe Biden (well, he will be 80 in November).

For tourists, a strong dollar is great news. It means you get more for your money abroad.

But for investors, a beefed-up buck is decidedly bad news.

When the dollar strengthens, that means foreign revenues are going to translate into fewer dollars. Those earnings are going to come in lower and any overseas investment you own is going to hurt you in a rising dollar environment.

Winter Is Coming! US Electricity Prices UP 24% Under Biden (S&P 500 Index DOWN -25.3% In 2022 As Fed Rate Reversal Expected In May 2023)

It’s beginning to look a lot like winter. Perhaps we should call Biden “Frosty The Snow Man” because it is going to be a miserable winter for the middle class and low wages workers as Biden’s green energy policies sink in.

The US CPI for electricity is up 24% under Nuclear Joe as The Fed continues to leave their balance sheet relatively untouched.

You might have to bail on the stock market to stay warm this winter, but it is a shame that the S&P 500 index is down -25.3% in 2022 as The Fed counterattacks Bidenflation.

When will The Federal Reserve pivot? That is, when can we sing “Here comes Santa Claus”?

According to the Fed Funds Futures data, Santa Claus is expected to return in May 2023 (rate reversal).

Double! US Diesel Prices Rising Again (UP 100% Under Biden) As Inventories Have Shrunk By -37.5% (And You Wonder Why Inflation Is Soaring?)

Like in the Sean Connery movie “The Hill,” we are seeing US diesel prices doubling.

Diesel, the lifeline of the shipping industry, is UP 100% under Biden (that is, diesel prices have doubled) while the inventory of diesel fuel has declined by -37.5% under Biden.

And you wonder why inflation is at 40 year highs?

Another Saturday High! US Mortgage Hits 7.20%, Highest Since 2000 As Fed Counterattacks Bidenflation (US Core Inflation Highest Since 1982)

Another Saturday high for the Biden Administration. Americans got less money thanks to Bidenflation.

The US 30yr Mortgage rate just hit a new high since 2000 as The Federal Reserve counterattacks the highest core inflation rate (6.60%) since 1982.

According to the Taylor Rule (which The Fed has chosen to ignore), a 6.60% core inflation rate implied a Fed target rate of 12.40%. Not likely since Fed Funds Futures data points to …

A maximum target rate of 4.963% at the May 2023 FOMC meeting, significantly lower than the needed rate of 12.40%. The Fed is like the world’s worst bar bouncer.

Rather than accepting blame for the horrific inflation rate crushing the American middle class and low wage workers, Biden is twisting the night away.

The Fed’s Limbo Rock! How Low Can Consumer Sentiment For Housing Go? (Lowest Reading Since 1992 As Fed Counterattacks Bidenflation)

The Fed’s Limbo Rock! How low can consumer sentiment for housing go?

The University of Michigan’s consumer sentiment index for housing for October just fell to its lowest level since 1992 as The Fed counterattacks against Bidenflation, causing mortgage interest rates to rise.

Of course, despite slowing home price growth, expensive home prices are really hurting along with expensive rents. But how sustainable are high home prices when REAL average hourly earnings growth is negative??

US Retail Sales Stagnate As Inflation Hits Consumers (Fed Tightening To Combat Bidenflation)

Bidenflation is just killing us. Now rising prices and The Fed’s counterattack are killing retail sales for American consumers.

US retail sales were sluggish last month, suggesting shoppers are becoming more guarded about discretionary purchases in the worst inflationary environment in decades.

The value of overall retail purchases were little changed in September after an upwardly revised 0.4% gain in August, Commerce Department data showed Friday. Excluding gasoline, retail sales were up 0.1%. The figures aren’t adjusted for inflation.

The median estimate in a Bloomberg survey of economists called for a 0.2% advance in retail sales.
Seven of 13 retail categories declined last month, according to the report, including a drop in receipts at auto dealers, furniture outlets, sporting goods stores and electronics merchants. The value of sales at gas stations fell 1.4%, reflecting cheaper fuel prices, but they’re now climbing.

At least Export Prices YoY are down below 10%! I hope exporting inflation to the world isn’t Secretary of State Antony Blinken’s idea of good foreign policy.

My favorite headline of the day is “Macron Reminds Biden to Think Before Speaking: “Biden’s Reckless Rhetoric puts World at Risk”“

How about a little Torquay from The Leftovers.

Fed Fireball! Fed Swaps Lean Toward Back-to-Back Three-Quarter-Point Hikes After Red-hot September Inflation Report (75 Basis Point Hike For Next 2 FOMC Meetings)

Fed Fireball!

* Fed Swaps Lean Toward Back-to-Back Three-Quarter-Point Hikes
* Hotter-than-expected September inflation data spark shift

(Bloomberg) — The market for wagers on the Federal Reserve’s policy rate is leaning toward pricing back-to-back 75 basis point rate hikes in the next two central bank meetings after consumer prices rose more than forecast in September.

The rate on the November overnight index swap contract rose to 3.86%, more than 75 basis points above the current effective fed funds rate, while the one referring to December climbed to 4.50%. A total of 142 basis points of rate hikes are now priced in for the next two policy meetings, just short of consecutive three-quarter-point hikes.

Prior to the inflation data, OIS markets were leaning toward the central bank cooling the pace of tightening to a 50 basis point move in December. At Wednesday’s close, swaps priced in around 130 basis points of hikes over the remaining of the year, which is equivalent to 55 basis points for December.

The market also priced in a higher eventual peak for the policy rate, with the March 2023 contract touching 4.864%.

The CPI data was “clearly a shock for the markets and the markets are off because of it,” Seth Carpenter, chief global economist at Morgan Stanley said on Bloomberg television. “There is persistence, particularly in the services side of inflation.”

Excluding food and energy, the Consumer Price Index increased 6.6% from a year ago, the highest level since 1982, Labor Department data showed Thursday. From a month earlier, the core CPI climbed 0.6% for a second straight month.

The Fed has raised its policy rate five times since March, most recently to a range of 3%-3.25% in September, after dropping the lower bound to 0% two years earlier at the onset of the pandemic.

The Fed Funds Futures data is pointing further Fed rate hikes with a turnaround in March 2023.

And with that awful inflation report and the likely Fed counterattack, the two year US Treasury yield has risen to 4.4361%, the highest since The Great Recession and banking crisis.

Fed Fireball! Comin’ at ya!!

Biden and Powell should appear on Saturday Night Live as the joint Debbie Downer. Or Democrat Downer.