Rates as of 0500 GMT

Market Recap

Quite a remarkable day. It just goes to show that, as I said in my Weekly Outlook last Friday, that The facts arent everything. Its also important to understand how people interpret the facts.

The news yesterday was quite bullish for the dollar. The strongerthanexpected US retail sales figures show that the US consumer is still spending despite the downturn in sentiment and is willing to run down savings to keep up consumption see US retail sales figures above, which dont show the sharp upward revision to the March data. US industrial production also beat expectations. Plus we got some even more hawkishthanusual comments by Fed Chair Powell, who said the Fed needs to see inflation coming down in a clear and convincing way, and were going to keep pushing until we see that even if it means taking rates beyond neutral neutral rates are not a stopping point.

The fed funds market has already priced terminal policy rates above the Feds estimate of neutral 3.185 in July 2023, vs the Feds estimate that neutral is around 2.40 so this is not a total surprise, but it was a clear and explicit warning to the markets.

The result was a large rerating of Fed rate hike expectations.

Nonetheless the dollar declined against most currencies. Why? Probably because this isnt necessarily new news, while there was new news on some other currencies.

The thing that really surprised me though and why I started this comment with the quote from my weekly…