Stocks
Risk assets are enjoying one of their best days in some time as Fed Chair Jerome Powell continued to dispel inflation fears while signaling that the central bank would keep policy accommodative for some time to come. Asia markets took the Wall Street lead and painted the ticker tape green.
Usually, folks read what they want to read in Fed commentary. However, with both Fed Chair Powell and Vice Chair Richard Clarida singing the same song sheet, they left little to the imagination as the FOMC are in total sync on monetary policy's current posture—extremely loose and comfortable might best describe that fit.
And it's also 'clear as a sunny day' now is not the time to change that tune as evidently 'the job is not done yet.'
Fed Vice Chair Clarida, in remarks yesterday, gave the most dovish view on Fed funds yet, saying the rate won't be raised until inflation has realized a sustainable 2% and maximum employment has been achieved.
Indeed, this is about as strong as to push back on the recent performance of short-end rates, which have pulled forward Fed takeoff, steepened the pace of hikes, and also raised the terminal rate.
Will this be enough to change dynamics in the rates market, possibly for the rest of the week? But with discussions amongst the Democrats pointing to as much as $3tn in infrastructure spending in August (half paid for by taxes) and the pandemic continues to normalize, the market may not wait for the Fed's signal to price the eventual pullback in monetary accommodation.
Forex
The market seemed to be caught off guard and confused by a government decision to add housing to the RBNZ remit given the red-hot New Zealand housing market, and the market took this as a green light to pay everything. A thin market took Feb. 22 RBNZ to 65% priced and even threw in token hikes for the 2020 meetings.
The kiwi is still hanging in there, however, on commodity reflation impulse.
Gold Markets
While higher budget deficits, fiscal spending increases, and the whole reflation/inflation theme are ostensibly positive for gold, they may not be so bullish if they encourage a rapid rise in yields. Higher yields continue to undercut gold, and now bullion finds itself hanging by a thread only due to US dollar weakness.
Oil Markets
As if you needed another reason to buy oil futures.
WTI crude is now a full USD 10/bbl above the Dallas Fed Energy Survey's Q3-20 range of estimates (USD 51-55/bbl) where oil company executives would have expected an increase in drilling activity, so where is shale?
US oil company CEOs reaffirmed commitments to capital discipline this week. Pioneer Natural Resources (NYSE:PXD) CEO Scott Sheffield planned to limit production growth to 5% a year and noted that capital spending would now represent a much-reduced proportion of cash flow compared to previous years. Meanwhile, Diamondback Energy (NASDAQ:FANG) CEO Travis Stice sees rig additions as not yet sufficient to offset the natural decline from existing wells and expressed reservations about growing oil production in an 'artificially undersupplied market.'
An unresponsive Shale market suggests the fate of oil prices lies entirely on OPEC's shoulder. Typically, pre-OPEC meeting week is littered with noisy discussions where OPEC supply management features prominent and causes oil prices to swing widely. However, unity rather than cessation might be the outcome of next week's meeting if the last two weeks of the oil market rally tell us a thing or two.