US first quarter growth was flat and the Atlanta Fed tracker for Q2 is currently at 0.0% so it will need to be a strong second half just to get to 2.9%.

In any case, these forecasts offer a sense of where the official consensus is.

• 2023 1.7% vs 2.3% in April
• 2024 +0.8%
• 2025 +1.7%
• 2026 +2.1%

As for monetary policy, they called for an ‚assertive and rapid‘ withdrawal of stimulus. 

In her comments, Georgieva also hints an global frustration with the intensity of US domestic demand and how it’s boosting prices everywhere. She said misjudgements by the Fed will result in negative outward spillovers to the global economy.

This article was written by Adam Button at www.forexlive.com.

Markets are pricing in a 27% chance that the Fed only does 50 basis points, so she might consider being careful here. And a big reason  the market is pricing that in is because that’s what the Fed guided. You can’t tell the market what you’re going to do and then say you’re only doing it because that’s what the market has priced.

In another sign of the mess the Fed finds itself in, Daly cited the UMich inflation expectations survey for the 75 bps hike rather than 50. Today that number was revised back down. She acknowledged that today, saying the revision ‚got my attention‘ while still saying that long-term inflation expectations have ‚ticked up‘.

She also laid out a strategy, saying that if they front load rate hikes they might not have to do as much. This commentary is a bit of a departure from the unrelenting hawkish talk lately.

This article was written by Adam Button at www.forexlive.com.

• UMich final 5-year inflation expectations 3.1% vs 3.3% prelim
• US May new home sales 696K vs 588K expected
• Fed’s Daly: We don’t need to think about the end-point for the balance sheet yet
• Fed’s Daly: We want to bring down inflation without crippling growth
• Baker Hughes US oil rig count 594 vs 584 prior
• ECB’s Centeno: Flexible PEPP reinvestments are a powerful tool
• US Supreme Court overturns Roe V. Wade
• BOE’s Pill: Elevated UK inflation stems largely from external shocks
• Belgian June business sentiment -1.8 vs +1.8 prior
• ECB’s De Guindos: Economy losing momentum according to PMIs

Markets:

• S&P 500 up 115 points, or 3.0%, to 3914
• US 10-year yields up 6.8 bps to 3.14%
• WTI crude oil up $2.79 to $107.66
• Gold up $4 to $1826
• AUD leads, JPY lags

After hiking by 75 basis points instead of the 50 bps he long-ascribed to, Powell cited the jump in inflation expectations in the UMich consumer sentiment survey as a factor. Well, he might have waited until the final data was out, as the numbers were lowered.

The market jumped on that and the odds of just a 50 bps hike in July roughly doubled to 27%. That sentiment weighed on the US dollar and boosted stocks as well with some particularly large moves in the commodity currencies.

CAD was doubly boosted by a rebound in oil that left crude down just $2 on the week — a far cry from the mid-week crash. After touching 1.3000 in Asia, USD/CAD finished on the lows at 1.2880.

AUD/USD was similarly strong and found some breathing room above the double bottom 0.6833 in a climb to 0.6937.

The growing problem is the push-and-pull in bonds. The better tone on risk assets took 10-year yields from a low of 3.03% to 3.14%, with less worry about a recession starting to mean a shift back to worries about inflation. That’s a tenuous dynamic that leaves a narrow window for an extension of this price action.

The US dollar was broadly weak but made some progress against the yen.

Curiously, the pound was able to find few bids despite the positive risk tone. Some of that relates back to worries about growth in the eurozone. For its part, the euro managed to climb 30 pips on the session.

Have a great weekend.

This article was written by Adam Button at www.forexlive.com.

On the day:

• S&P 500 3.0%
• Nasdaq +3.2%
• Russell 2000+3.0%
• DJIA +2.6%

On the week:

• S&P 500 +6.4%
• Nasdaq +7.5%
• DJIA +5.4%

Last week was the worst one for US stocks since March 2020 but this week all those declines were wiped out.

This article was written by Adam Button at www.forexlive.com.

• If supply continues to fall short and inflation stays high, we will need to do more, if not we can do less
• Likely to be some slowing in economy but not a recession
• We have the tools to bring down inflation, it’s our number one priority
• How much additional tightening depends on factors beyond the Fed’s control

This article was written by Adam Button at www.forexlive.com.

Today’s gain has pushed the index into the mid-June gap.

This article was written by Adam Button at www.forexlive.com.

Both are lower compared to last Friday’s close and that’s the second week in a row of declines but it follows a streak of seven consecutive weekly gains.

Overall, crude is right in the middle of the range since the outbreak of the Ukraine war and the bulls should be encouraged by that given the recession fears, the OPEC+ increase and the SPR release.

As for OPEC+, they will meet again on Thursday but a report this week citing five sources indicated the status quo. A bigger question is what happens beyond August when the scheduled increases run out. Nigeria has been underproducing but said it hopes to have its oil online quickly. Libya’s production is inconsistent. Hopes for an end to the Iran nuclear deal are nearly non-existent.

For me, the dominant feature on the chart is the series of higher lows that’s intact so long as crude stays above $95. The buying interest today shows ongoing tightness in the physical market but a sharp economic slowdown could reverse that in the months ahead.

This article was written by Adam Button at www.forexlive.com.

• Lower growth, higher inflation will follow in the months ahead
• Inflation to start declining in Q4 this year
• Main concern is second round effects of inflation
• A wage price spiral will be very detrimental for the economy

Just some token remarks there by de Guindos but once again it just reaffirms the narrative that central banks are continuing to kick the can down the road when it comes to the timeline of getting inflation „under control“.

This article was written by Justin Low at www.forexlive.com.

• Frontloading rate hikes is a good idea in this situation
• It means that we can stop inflation before it becomes entrenched
• Would like for rates to move up to 3.50% by year-end

Central banking these days have never really been about going „according to plan“. Remember when policymakers were telling us that inflation was just ‚transitory‘? The last echoes of that sentiment wasn’t even a year ago. Pfft.

This article was written by Justin Low at www.forexlive.com.

• Households have much savings from the pandemic
• No sign from households that they are pulling back on spending meaningfully
• Labour market is very strong
• Rate hikes will slow down the economy but only slow it down to trend growth
• There will just be a moderate slowdown in the economy, not a major one
• It will be unusual to return to a recession unless there is a big shock
• We are not even near neutral rate yet to control inflation, so too early to talk about recession probabilities

There isn’t anything here that suggests that he is on the same page as Powell about demand destruction and he is certainly going out of his way to reassure that a recession isn’t imminent in the US.

This article was written by Justin Low at www.forexlive.com.