In today’s briefing:
- The Fate of Quantitative Tightening: Not Solely in the Hands of the Fed
- Steno Signals #76: The Fed Has Lost Control of Liquidity Trends
- Sell Signal Setups Are Appearing, But Don’t Panic
- The Market Meaning of a Gold Breakout
The Fate of Quantitative Tightening: Not Solely in the Hands of the Fed
- The twin pillars that underpinned US monetary policy since the global financial crisis made policy normalisation difficult. Investors believe quantitative tightening (QT) ceases once the federal funds rate is lowered.
- Contrary to the fears encountered during the taper tantrum in 2013, QT has not dramatically tightened US financial conditions since 2017, thereby raising questions about whether any cessation is required.
- High levels of bank reserves do not guarantee financial stability, but elevated Treasury borrowing and lower repo market liquidity pose threats that could ultimately force the Fed to end QT.
Steno Signals #76: The Fed Has Lost Control of Liquidity Trends
- Happy Sunday from frosty Copenhagen and welcome to our flagship editorial! The underlying demand trends are not strong.
- Running credit card data has been weak in October/November, the credit impulse is worsening and there are signs of actual labour market softening around the otherwise sticky service sectors in the West, yet markets are partying like there is no tomorrow.
- What is causing this disconnect and could it continue into the year-end?
Sell Signal Setups Are Appearing, But Don’t Panic
- Technical indicators are flashing very preliminary warning signs of an impending market top, but it’s too early for traders to take action.
- Price momentum is still positive and other bearish tripwires have not turned bearish yet.
- We are inclined to trust the seasonal pattern of December market strength.
The Market Meaning of a Gold Breakout
- Gold bulls became very excited when gold tested resistance at the 2000–2100 level. We have been more interested in the drivers of gold strength than trying to forecast gold itself.
- Our analysis indicates that gold is rising on expectations of falling real rates, which also depresses the USD.
- These factors should be bullish for the price of risky assets. Specifically, we would focus on financials and other early market cycle groups.
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