MACRO DIGEST - Semi-Annual Ecoomic testimoney to Congress - FINAL VERDICT: Yellen night turned into yelling night

Chair Janet L. Yellen

Semiannual Monetary Policy Report to the Congress

Before the Committee on Financial Services, U.S. House of Representatives, Washington, D.C.

February 10, 2016

 

Full link here

 

Today's testimony showed US politics and central banking from its worst side: The politicians were rude and pretty much clueless – one senator claiming interest rates was up 28% this year!

 

Reminds me of South Africa's President, who does not know the difference between 1000s and billions: Zuma and counting but worse the Chair of the Federal Reserve was of little help and often looked like a deer in the headlight. Incredible! I am sure Ms. Yellen is an excellent "model economist" but her performance today is probably the worst I have ever seen from seasoned central banker!

 

This is an issue why? Fed came into this meeting with very little credibility and this "event" did not add to the tally, instead we are left wondering how they expect to "help" the market. One Senator did observe: Ms. Yellen, what tools are those you keep talking about – interest is pretty much zero anyhow? Yellen response? Well, we can do "lower for longer……" !!!!!

 

So… let's forget about central banks –Yes, Draghi will try to command some media time and likewise will BOJ… but……..probably to no use.

 

I have noticed recently that USDJPY seems to lead S&P-500 – USDJPY took out some serious support this evening….

 

 

 

Yellen almost totally ignored the FINANCIAL STRESS ….despite it making new highs……

 

 

Left scale is # of Fed hikes in 2016 (inverted)……

 

Post Yellen and yelling my Primary Confidence Indicators continues down: CRISIS mode is now present status!

 

 

Source: T-theory (the late Terry Landry remains one of the best reads about markets ever! http://mrtopstep.com/wp-content/uploads/2015/12/MagicT-IntroTo-Theory.pdf )

 

But.. if all of this is not helping why did market stay up most of the day?

 

Yes, banking sector was bought big on rumor ECB will buy bank debt….

 

From Evercore IS – via https://news.markets/bonds/ecb-likely-buy-corporate-debt-evercore-10652/

 

 

"Could the European Central Bank expand its asset-buying programme next month to include corporate debt in an effort to help the eurozone's banks? Evercore ISI thinks so.

 

"We think the ECB is increasingly likely to expand its (quantitative easing) programme into investment-grade corporate debt in March. This would be a means of pushing back against the surge in credit risk premia that is in turn contributing to pressure on equities in general and bank stocks in particular," the investment bank writes.

 

"Buying investment-grade corporate debt would directly lower spreads on this debt, while putting downward pressure indirectly on bank bond yields and on spreads on non-financial high-yield bonds through portfolio re-balancing effects," it adds.

 

Evercore ISI reckons the ECB is increasingly likely to introduce additional measures to support bank funding in a complementary effort to help stabilise eurozone banks.

"We do not think the ECB will buy bank debt outright. However, one obvious step would be to increase QE in covered bonds, allowing banks to wrap more assets and sell them to the ECB," it writes. "Another would be to put in place an additional series of cheap TLTRO term funding operations as a backstop to private market funding."

 

 

Conclusion:

 

Yellen DID NOT deliver anything to help the market at all  - she left Capitol Hill bruised (she is back tomorrow)….

 

Market is holding on to its gain into late New York, by virtue of two things:

 

1.) the ECB potential for buying bank debt in next QE expansion

2.) Shanghai G-7 meeting – rumors now of "something like Plaza Accord…etc.."…

 

Risk model is still calling market lower….

 

1813/15 – 1^st support…  1560/80 if broken – I still see end of March low… Oil in 20/22$, Gold in 1.300 and SPX …..well let's see…..

 

Safe travels,

 

Steen

 

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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