🔔 Absolute Nonsense

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Literally drowning in nonsense everywhere. So today I'm going to point at things and rant about how nonsensical they are. You'll either agree or disagree, we'll all benefit from the experience and move on with our lives.

1. History

Everyone knows there are lessons to be drawn from history. Things that were relevant in the past offer lessons for the present.

This rule doesn't apply to yesterday's Fed meeting minutes!

People were actually reading them as if they were relevant and not three weeks old!

"ooooh they were really hawkish"

Headlines like this don't help either 👇

 Bond Yields Climb on Hawkish FOMC Minutes, 10-Yr Reaches 2.92%— *Walter Bloomberg (@DeItaone) July 6, 2022 

Seriously, who's reading these minutes and selling bonds because it reads hawkish? We're talking about the same meeting where the Fed shocked the world with a 75bps hike.

Except it wasn't a shock because they [allegedly] leaked it to Nick Timiraos at the WSJ to make sure everyone knew in advance.

And a large part of that was due to the Michigan inflation expectations de-anchoring to 3.3% just before the meeting. The same inflation expectations that were revised down to a much happier 3.1% after the decision. So that's fine.  

Since the meeting commodity prices are way down too 👇

TeddyVallee

And the market focus has clearly shifted towards recession. PMI's are showing a slowdown in orders and employment momentum. Take a look at this from the US service PMI's 👇

The passing on of higher input costs to customers resulted in a further marked increase in selling prices in the US service sector.

That said, the rate of inflation slowed sharply for the second month running and was the softest since last September.

Some panellists reported trying to price competitively to attempt to stimulate new business in a weakening demand environment.

On top of that, interest rate futures are now pricing a peak interest rate of 3.3% (vs the 4% that was being priced pre-meeting) AND they're pricing in 50bps of rate cuts by the end of 2023. 👇

BBG

Meeting minutes are often stale by the time they're released. This time round it was even more insane than usual to pay them any attention. In the context of the current market, those minutes are ancient history.

2. Europe - ECB/EU

ECB minutes were released today too. Nobody cared. It's the next meeting that's important. And just as interest rates are about to increase, French finance minister Bruno Le Maire says that debt rules don't matter any more. 👇

 🇫🇷🔥 French finance minister says EU debt rules are ‘obsolete’

“The Netherlands are not particularly frugal. Germany is not particularly frugal. They spend as much as we do to protect their citizens from inflation.”https://t.co/UTro84cHVn pic.twitter.com/ECnDZtPUKH— Tim (@VolaTim) July 7, 2022 

Bank of France governor Villeroy strongly disagrees. They should probably talk to each other... 👇

"Clearly the era of negative or zero interest rates is over; we need to spurn the seductive but dangerous illusion that French public debt comes without costs and limits,"

At least work on the fragmentation tool's going well. They've got the most important work done already! 👇 /s

BBG

No rush guys. Still a couple of weeks yet.

Who wants to bet they'll even get it done before their August holidays, let alone the July policy meeting...?

Policy makers have tried to reassure investors that a measure will be ready. On June 29 at the ECB’s annual retreat in Sintra, Portugal, Lagarde stated that a new tool “will be considered by the Governing Council” on July 21, saying at the time that “it’s a work in progress.”

Meanwhile Vice President Luis de Guindos said earlier this week that

“I hope for sure that we will reach an agreement.”

3. Bank of England's Dilemma

The most reluctant hikers in the G7 might have to go big with 50bps at the next meeting. The latest BoE survey of UK businesses showed that cost and wage pressures aren't going anywhere. 👇

Over the past 12 months to June, average unit costs were estimated to have increased by 9.5%. Over the next 12 months, firms expected unit cost growth to be 8.2%, on average.

Average wage growth was reported to have been 5.7% over the year to June, and was expected to be 5.1% over the next 12 months.

That wage growth is at least in part due to the difficulty in recruiting. This chart tells the story 👇

ING

Harsh as it sounds, the central bank will want to see that "Not Recruiting" column tick higher as an indicator of slowing economic momentum. Instead, it actually ticked down in June...

Get another 50bps hike in before the winter of discontent? Whoever replaces Boris Johnson is in for a rollercoaster ride. Bank of England Chief Economist Huw Pill said yesterday "We're not expecting really to see any growth in the economy over the next year or so,". No growth, but gotta hike anyway. Happy days.

God Save The Queen & Rule Britannia ✊

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