New Premium Trade And Pressure Lifts On The Fed

by Adam Button

The Fed blackout period was a reminder the central bank could be its own worst enemy—something it may have wanted to keep in mind ahead of yesterday’s FOMC . More below. 

The was the top performer Tuesday while the lagged. A new Premium trade was issued. 

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Markets in July have been consumed with escalating worries (not necessarily selloffs): 1) China 2) Delta variant 3) Equity earnings 4) Leverage. Inflation worries, however, have eased, albeit temporarily. Yet, falling Treasury yields and the sense that we’ve passed the peak of bottlenecks have proven to be a relief for the market.

The best central banks are the ones that keep off the front pages, and Powell’s goal yesterday was to strive for as little attention as possible. None of the questions the Fed was asked have been answered and pressure on them to act is low. The path forward here is to acknowledge risks around COVID and while emphasizing that the Fed is in no rush. The market wanted to hear there’s significant work to do on employment and that any policy changes will be foreshadowed well in advance.

The selloff on Tuesday was likely a shift in positions in expectation of a dovish Fed. Do not forget month-end adjustments over the next 2 days. 

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