Comment of the Day
Video commentary for June 15th 2022
A link to today's video commentary is posted in the Subscriber's Area.
Some of the topics discussed include: Fed hikes rates 75 basis points, ECB aids Italian debt, buy the news rebound in risk assets has been modest so far with financial conditions still expected to tighten further.
Fed Hikes Rates 75 Basis Points, Intensifying Inflation Fight
This article from Bloomberg may be of interest to subscribers. Here is a section:
Federal Reserve officials raised their main interest rate by three-quarters of a percentage point -- the biggest increase since 1994 -- and signaled they will keep hiking aggressively this year, resorting to drastic measures to restrain the rampant inflation they failed to forecast.
Slammed by critics for not anticipating the fastest price gains in four decades and then for being too slow to respond to it, Chairman Jerome Powell and colleagues on Wednesday intensified their effort to cool prices by lifting the target range for the federal funds rate to 1.5% to 1.75%.
They projected raising it to 3.4% by year-end, implying another 175 basis points of tightening this year.
The median official saw a peak rate of 3.8% in 2023, and five officials forecast a federal funds rate above 4%; the median projection in March was for 1.9% this year and 2.8% next. Traders in futures markets were betting on a peak rate of about 4% ahead of the release.
The Fed reiterated it will shrink its massive balance sheet by $47.5 billion a month -- a move that took effect June 1 -- stepping up to $95 billion in September.
My view - The Fed expects to raise rates above 3% by the end of the year. That’s a higher high. The only time the Fed Funds rate posted a higher high in the past was in 1999 and it was quickly reversed. This time around, the big question is how long that level will be sustained and where the next low will be.
ECB Speeds Up Work on Crisis Tool After Italian Bond Blowout
This article from Bloomberg may be of interest to subscribers. Here is a section:
The ECB surprised markets Wednesday by holding the unscheduled meeting to discuss a market backdrop that’s deteriorated markedly since plans to start lifting borrowing costs from record lows were outlined last week.
Investors aren’t convinced officials can raise borrowing costs to combat unprecedented euro-zone inflation while also keeping yields among the bloc’s most indebted members in check. A possible 75 basis-point rate increase from the Federal Reserve later in the day could add to the jitters.
“I see today’s statement as the bare minimum of what could be expected, but also the most realistic outcome,” said Piet Christiansen, chief strategist at Danske Bank. “With ECB tasking the committees they have sent a signal that they have fully committed to ensure the functioning of the monetary policy transmission. However, they have also bought themselves some time. We will likely only hear from the committees at the July or September meeting.”
A different tool to address market stress would open a new chapter in the ECB’s fractious relationship with bond markets ever since debt-laden Greece first succumbed to turmoil more than a decade ago.
That crisis was ultimately tamed by ECB President Mario Draghi’s creation of the OMT program, part of his pledge to do “whatever it takes” to preserve the euro. Meanwhile, market stress at the onset of the pandemic was addresses with another emergency bond-buying program.
Officials have repeated recently that they’re ready to devise new instruments as required, but have disappointed markets with a lack of detail on their plans.
My view - The ECB’s QE program bought bonds weighted by the size of the respective economies in the Eurozone. That was a handy way of ensuring the ECB ended up with higher quality bonds; heavily weighted to Germany. Since Italy is the third largest economy in the region it also served the purpose of helping suppress its yields.
Bitcoin Veterans Know to Keep Their Eyes on the $19,511 Level
This article from Bloomberg may be of interest to subscribers. Here is a section:
Round numbers tend to be a fixation for Bitcoin chart-watchers, with many keeping their eyes peeled on $20,000 amid the latest swoon. But veterans know to be on the lookout for a more noteworthy one: $19,511.
That’s the high the coin hit during its last bull cycle in 2017, which it reached at the end of that year. Throughout its roughly 12-year trading history, Bitcoin has never dropped below previous cycle peaks, according to Vetle Lunde and Jaran Mellerud at Arcane Research, so a break below it would be momentous.
“A potential visit below this level could lead to a lot of hodlers capitulating and a wind-down of leverage, making this a very important support level to pay attention to onwards,” the pair wrote in a note, referencing long-term, staunch holders.
In addition, besides the psychological importance of the level, most of the open interest in Bitcoin options is based on the $20,000 strike price, according to Arcane, “which can contribute to selling pressure in the spot market should the price fall below.”
My view - If most option strikes are at $20,000 and most options trade for several thousand dollars, the majority of positions are already underwater. Therefore, stops are being placed on leveraged bets, even as some traders look for entry opportunities.
FDA Approves Historic Alopecia Treatment by Eli Lilly, Incyte
This article from Bloomberg may be of interest to subscribers. Here is a section:
The Food and Drug Administration on Monday approved the first systemic treatment for alopecia areata, an autoimmune disorder that causes hair loss and affects more than 300,000 people in the US each year.
The drug is sold by Eli Lilly & Co. and Incyte Corp. under the brand name Olumiant and comes in the form of oral tablets taken once daily. It’s approved for adult patients with severe alopecia. In two big trials, about 40% of people with severe alopecia achieved significant hair growth after 36 weeks, according to the FDA.
My view - Sitting around the kitchen table with most of my siblings two weeks ago, the topic of hair loss and greying was of particular interest to my sister who is turning 40 at her next birthday and my youngest brother who is 25.
Hair loss treatments are big business. Minoxidil (Rogaine) application is apparently almost more trouble than it is worth. Finasteride is a pill but reduces testosterone and can impact libido which is not exactly ideal. Meanwhile Elon Musk’s success in tackling his male pattern baldness clearly signals that at least surgical options are available.
Eoin's personal portfolio Stock market short increased
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