Fed Chairmen Express Differing Views on Rate Hikes, Soros Speaks about Brexit, more…

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Today has provided some enlightening contrasts between the financial markets and the Geo-Political arena. As of writing, the Dow Jones had reached yet another record level, just a few points shy of 21,500. Amazon too were riding high with their share price breaking past $1,000.

Outside of the market’s bubble and the illusion of an economic recovery, Russia has announced that it will ‘intercept any aircraft’ that enters Russian areas of occupation in Syria following the U.S. shooting down a Syrian jet on Sunday. Prior to this Iran launched missiles into ISIS held territory in Syria, in response to attacks in Tehran this month.

Overnight in the UK there was another attack in London where a white male ran over Muslim worshipers near to Finsbury Park Mosque, killing one person. It happened on the same day that Brexit negotiations began between the UK and the EU, and subsequently knocked the Grenfell Tower fire in West London out of the immediate headlines.

The ratcheting up of attacks (of which the UK is predominately baring the brunt of) and renewed outbreaks of violence in Syria come just two weeks before the G20 meeting in Hamburg on July 7th and 8th. As history has proven, these events – which comprise of world leaders and central bankers – have a habit of taking place as Geo-Political tensions begin to spike (the G8 summit of 2005 took place at the same time London’s transport network was targeted by suicide bombers).

One of the longstanding topics on the G20 agenda is counter terrorism, as well as the global financial system. Cyber security is also likely to feature. Coincidence or otherwise, a Cyber Security Summit is being held in London right before the G20 on July 4th.

Whatever occurs in the next couple of weeks (be it in the way of further acts of terrorism, heightened political ‘chaos’ in the West or an escalation of conflict in the Middle East), the state of the global economy will sadly not gain the attention of the wider public.

Psychologically, seeing the Dow Jones at record highs remains enough to convince vast swathes of people that the economy as a whole is performing well. Recent data – in particular GDP, retail and consumer debt – tells the opposite story.


Bloomberg: Fed’s Dudley Confident That U.S. Expansion Has a ‘Long Way to Go’

  • Federal Reserve Bank of New York President William Dudley aligned himself with Chair Janet Yellen in declaring his expectation that a tight labor market will eventually trigger a rebound in inflation data that has been unexpectedly weak in recent months.
  • “We’re pretty close to what we think is full employment,” Dudley said Monday in Plattsburgh, New York. “Inflation is a little bit lower than what we would like, but we think if the labor market continues to tighten, wages will gradually pick up, and with that, we’ll see inflation get back to 2 percent.”
  • “If we were not to withdraw accommodation, the risk would be that the economy would crash to a very, very low unemployment rate, and generate inflation,” Dudley said.“Then the risk would be that we would have to slam on the brakes and the next stop would be a recession.”

Market Watch: Fed’s Dudley says he’s not paying attention to bond market’s signals of concerns

  • New York Fed President William Dudley said Monday that the economy is in pretty good shape and he is not paying much attention to signals of concern from bond market, according to news reports. In a roundtable discussion in Plattsburgh, New York, Dudley said the economic outlook was “pretty good.” He said he wasn’t taking too much of a signal from low bond yields. U.S. yields are relatively high compared with Japan and Europe, he noted. The bond market is pricing in much fewer rate hikes over the next two years than the four moves the Fed has penciled in.

CNBC: George Soros says Britain’s next election could cancel the UK’s divorce with the EU

  • Brexit negotiators from Britain and the EU began formal talks on the U.K.’s exit from the bloc on Monday, however, billionaire financier George Soros predicted that if all goes well, both parties could look to cancel divorce proceedings before too long.
  • “The fact is that Brexit is a lose-lose proposition, harmful both to Britain and the European Union. It cannot be undone, but people can change their minds,” Soros wrote in The Mail on Sunday, a right-wing leaning tabloid newspaper in the U.K.
  • “The divorce process would take at least five years, and during that time new Elections would take place. If all went well, the two parties may want to remarry even before they have divorced,” he added.

Bloomberg: Fed’s Kaplan Ties Next Hike to Inflation as Kashkari Chides FOMC

  • The Federal Reserve should not raise interest rates again without confidence inflation is heading toward its 2 percent target, said Dallas Fed President Robert Kaplan.
  • Kaplan, who spoke on Friday in Dallas, said he was open to arguments that weak inflation readings were transitory, but the consecutive monthly declines had attracted his attention.
  • “I’m not calling it a pause yet,” he told reporters after speaking to the Park Cities Rotary Club. “But I’m basically saying that before I’d be comfortable taking the next step in raising the fed funds rate, I’m going to want to see more evidence that we’re making progress in reaching our 2 percent inflation objective.”

Zero Hedge: One Fed President Says The Rate Hike Decision Was A Choice “Between Faith And Data”

  • In a blog post from Minneapolis Fed president Neel Kashkari explaining why he dissented from the latest Fed rate hike decision, he admits as much when he says “for me, deciding whether to raise rates or hold steady came down to a tension between faith and data.
  • In a surprisingly honest assessment, he then says that “unfortunately, the data aren’t supporting this story, with the FOMC coming up short on its inflation target for many years in a row, and now with core inflation actually falling even as the labor market is tightening. If we base our outlook for inflation on these actual data, we shouldn’t have raised rates this week. Instead, we should have waited to see if the recent drop in inflation is transitory to ensure that we are fulfilling our inflation mandate.”

Reuters: China’s U.S. bond holdings grew in April, still behind Japan

  • China increased its ownership of U.S. Treasuries for the third straight month in April to its highest in six months but still ranked behind Japan, which remained the United States’ biggest creditor, U.S. Treasury Department data showed on Thursday.
  • Overall foreigners in April bought the smallest amount of long-term U.S. securities in four months.
  • Meanwhile, foreign investors sold $22.53 billion in Treasuries in April, the most since October. This compared with $24.39 billion they bought in March.
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