Markets

(New York)

It was uncertain for a while, and still is, but markets are increasingly expecting the Fed to cut rates again this month. Investors now put around a 75% chance that the Fed will slash rates by another 25 bp this month. The interesting thing is at the beginning of this week, the market’s odds were under 40%. However, the release of weak manufacturing data a few days ago sent expectations surging that the Fed would once again step in.


FINSUM: New jobs report data out today will only bolster the case for further rate cuts.

(New York)

Every advisor is likely already aware of the huge ruction that occurred in money markets this week. A number of short-term stresses sent over-night borrowing rates up to 10% this week before the Fed had to intervene to inject tens of billions of Dollars of liquidity to calm things down. Most media outlets have explained this as a number of cyclical short-term factors, without really giving any specifics. The whole episode has been curiously vague. This has led to an unusually fertile environment for rumors and speculation.


FINSUM: So our readers will know that we have been reporting for years, and we must say that this has been one of the oddest, mostly poorly reported, and vague events we have ever covered. None of the cited reasons of this money market flare up make much sense relative to the scale of money the Fed has pumped in. One of the best rumors we have heard is that there may be a bank failure coming. Just before this market flare up, oil jumped almost 20% in a day, its single largest one-day move ever. That kind of black swan event could easily destabilize a large financial institution if it was positioned the wrong way, and ultimately led to the kind of short-term funding desperation we saw before the last Crisis. This analysis is probably all wrong, but the situation must be taken seriously.

(New York)

Treasury bonds and their associated funds just had one of the worst periods on record. Specifically, they had their worst week since Trump was elected. The iShares 20+ Year Treasury Bond ETF fell 6.2% in a week, the sharpest drop since bond markets panicked on Trump’s surprise election. What is odd about the big drop is that the stock market remained relatively muted throughout. Usually, big losses in Treasuries come when there is a big risk-on rally in stock markets.


FINSUM: There has been a huge rally in bonds, and in the last week, a lot of the pessimism has faded from markets as economic data is relatively stable and trade war fears are ebbing. Accordingly, this could be the start of a real rout.

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