FOMC pretend-and-extend another one month - Hawkish tilt

This is the probabiliy of FED hikes@ June 2015 meeting..

 

Six month ago 25 bps had 30% chance  // 50 bps had 35% chance

 

Now… 25 bps move to 44%  // 50 bps to 23%

 

 

 

Seriously do we spend so much time & energy analysing net changes of 14% in probabilities as indicator for the future…(14% delta change on nothing x 20% of the economy(listed companies + banks) =  NO new growth))

 

Meanwhile a flux of US companies complain about  a rising US dollar among several Blue Chip name – and as for top line growth – Foreign sales is more than 40% of total for S&P-500 .

 

FED did massive bet on economy by delaying – not disimilar to their late initiation of tapering… this in their mind is similar… hike "should" happen if….and….if…and if…

 

Clearly omitting the global economy and US dollar from text swayed the tilt towars hawkish mainly by shifting focus from three to two major levers….

 

Next time FOMC will go away from "sluggish labor market" and then try unwind /mis-communicate on "lower for longer"

 

The big "aber dabei" however is inflation (or lack of it)  – Similar to Europe dis-inflation will ultimately unachor the scenario. Don't forget ECB came late to fighting deflation due "well anchored expecations" – The fact that there are no empirical evidence that inflation expectations is even close to realised inflation does not stop the FOMC or ECB from using it as excuse to buy more time.  Fed hedged and hedged and double edged their wording on inflation – but look around the world and tell me where will inflation come from in the next quarter?

 

TACTICAL RESPONSE:

 

Mid-NOVEMBER is now my key date on timeline…

 

I expect we trade the "hawkish tilt" through their  w. strong US dollar, weaker commodities, unchanged long term interest rates, weak EM ccy, and negative equity market. That will replaced by the "unanchoring" of the June hike which will move to September by year-end and December by end of Q1 – which will secure nice December rally of retest of lows in stock markets and lead us to strong Q1 – overall 2015 will be loss for equities as REALITY catches up with FANTASY – We have waited for Godot (higher  growth in US) for  five years, it will be six soon….

 

 

 

 

 

Med venlig hilsen  |  Best regards
Steen Jakobsen  |  Chief Investment Officer

 

Saxo Bank A/S  |  Philip Heymans Allé 15  |  DK-2900 Hellerup
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