It’s noisy out there. It always is, but this week seems particularly noisy.
We have the debt ceiling theater ongoing with the likelihood that both sides will try to extract what they can from the other in the form of concessions before agreeing and ending this incessant media obsession on the process.
Separately, or maybe very much related, there appears to be a concerted effort to talk the US dollar up by talking up the Fed’s need to continue fighting inflation. In other words, talking up Treasury yields, which are USD supportive. They’ve trotted out Bullard and a few other hawkish voices over the last couple of weeks and now we have Ben Bernanke ruminating about how much work the Fed has to do to fight inflation.
Former Fed Chair Ben Bernanke says there’s more work ahead to control inflation
A looming would-be debt default would not be good for the currency (ref. our potential pullback point ‘C’ in the low 90s, within the USD bull market). Nothing is ever a certainty (for example, the 30yr yield Continuum indicator, intact for decades, broke trend last year) but if past is prologue they will hammer out a debt deal.
As a side note, CME Group has adjusted its Fed rate watch tool slightly, now still projecting no rate hike in June at 67.3% with .25% rate hike projected by 32.7% of CME traders. If the Fed really wanted to put the screws to the markets and thus the inflation therein (the stock bull was manufactured by inflation as we noted in real time in H1, 2020) they’d have the balls to go .25%.
But more likely, it’s all typical noise with the media and policymakers all in the game doing their best to confuse us. Best not to step too far one way or another until resolved. Noise aside, I still see the picture (beyond this annoying time) as stocks to top out of the bear market rally and precious metals to finish up the correction in the coming weeks with a macro dis-inflating prior to the next inflationary phase.
I hope the above is not too much of a word salad. It’s me thinking aloud.
