Market

[Pascal]

This market is pricing a NO-RATE increase.
I feel that this is somewhat strange after it has prepared for weeks for a rate increase.
Is the move a Fed's assistants pre-emptive strike before a rate increase tomorrow?

I still believe that the Fed will not dare to "do it."



Pascal

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[PeterR]

Hello Pascal,

what do you think about yesterdays move in gold and non-move in bonds ?

Can we see the gold's rally as a hint towards inflation expectations and more accommodation at today's FOMC
or
Can we see gold's rally as anticipation of a rate increase that would be the start of tightening cycle in response to assumed higher inflation ?

Is the FED reacting or is the FED leading - in regard to inflation ?

TY,
Peter

[Pascal]

Hello Pascal,

what do you think about yesterdays move in gold and non-move in bonds ?

Can we see the gold's rally as a hint towards inflation expectations and more accommodation at today's FOMC
or
Can we see gold's rally as anticipation of a rate increase that would be the start of tightening cycle in response to assumed higher inflation ?

Is the FED reacting or is the FED leading - in regard to inflation ?

TY,
Peter

Hi Peter,


It is best to look at the big picture.
Gold is a very tiny market. It is orbiting very close to currencies, but also to US Treasuries (due to the inverse relation to interest rates.)

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You can see below that gold moves are split between its two closest planets (markets.) Hence, I believe that gold is more a toy than a leading indicator. The proof is that US issued debt (official debt sold through Treasuries) is 40 times the size of the US official gold reserves. Even if gold gained 100% overnight, it would still be an instrument of negligible importance for the world economy or for the stability of any country's balance sheet.

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The Fed wants to keep control even if it raises rates today. I believe that the Fed has provided liquidity to the markets for the past few days as a preemptive move against a possible negative market reaction. I also think that the Fed will not decide on the basis of weakening data, but will decide on their interpretation of the "window opportunity" to raise rates.

If they (Fed Governors) do not do it, then they must be very confident that they will still be able to act in December,... even with a continuous deterioration of the world economies.


Pascal

PS: More in today's daily comment.

[PeterR]

TY for the detailed reply,
I subscribed, finally.

Your gravity-market-size-analogy is quite interesting.
I have to think about it.

You point to the tactical situation the FED is in - against an international
background. That is very important IMHO:

The FED is held responsible and criticized predominately on a national level - but has to act in international environment. I think, this is one reason why the FED created new chewing gum metrics for data-dependent acting & reasoning.

regards,
Peter

[Pascal]

TY for the detailed reply,
I subscribed, finally.

Your gravity-market-size-analogy is quite interesting.
I have to think about it.

You point to the tactical situation the FED is in - against an international
background. That is very important IMHO:

The FED is held responsible and criticized predominately on a national level - but has to act in international environment. I think, this is one reason why the FED created new chewing gum metrics for data-dependent acting & reasoning.

regards,
Peter

Thanks Peter!


Pascal