Launch Pad

Today

It’s hard to say if all the hype leading up to yesterday’s FOMC meeting was worth it. In the end we saw some dots move. The shift was significant, given six more participants saw an earlier move on rates compared to the March meeting. We’re still talking about 2023, so it’s not like any change would be imminent. For now the Fed signaled it will continue to provide substantial support to the economy, maintaining the status quo on interest rates, asset purchases and forward guidance. If true to its word, the Fed will want to see proof that the spike in prices is more than “transitory” before taking action on rates.
 
Bond yields jumped, and stocks moved lower following the meeting. This morning, equities continue that trend with futures falling. The bond market is calm, though globally European yields are playing catchup. Nervousness about the path of bond yields remains a predominant market theme.
 
The U.S. Dollar rose for a fifth day and is up against all majors this morning. The Canadian dollar has had its wings clipped the past two days and has fallen over a cent during that time period as you can see in the chart below. From its high on June 1^st, it’s currently down -2.6%, giving back all the gains from May and then some. This has been the largest pullback for the loonie since last fall. 

             
 
In the short run, the market is a narrative machine, but in the long run, it is a narrative-debunking machine. Great piece by Barry Ritholtz this morning, on how market narratives have pushed aside fundamentals. He touches on a few key narratives revolving around the crypto market, worker shortage, inflation and meme stocks. The piece also includes a few words of wisdom behind the godfather of narrative economics: Robert Shiller.

The ultimate battle of the EV's continues to play out, with a slight reversal year to date. Tesla may have been the first to do it and without Elon we probably wouldn't have progressed this far. But, don't count out the established companies like Ford Motors in the race. 


Diversion: With the US open beginning today, check out these funny golf stereotypes. 

Connected Wealth™ Tactical Primer

Some years it really pays to be tactical, and 2020 was certainly one of those years with multiple all-time highs and a very deep multi-year low. Of course the hard part is how to be tactical.  The Purpose Tactical Asset Allocation Fund / ETF is a quantitative rules-based portfolio best used as a sidecar strategy to add a tactical component to a portfolio. The main goal of Tactical is to get defensive quickly when markets turn negative, providing a stabilizer for the overall portfolio, while still capturing reasonable upside in rising markets. The asset allocation can range from 100% equity to 100% fixed income / cash. In the Primer we share our models, sensitivities, how and why we developed the strategy, analytics on what kind of market it works best, and what kind of market it does not work as well.
 
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Commodities

Crude oil futures are starting the day out in the red as investors take note of the Feds 'talking about talking about tapering' meeting. At the time of writing, NYM WTI crude futures are down -0.21% to US$72/bbl. ICE Brent Crude futures are down -0.31% to US$74.16/bbl. With the Fed discussing tapering and a couple rate hikes later in 2023, the US dollar spiked. Which ultimately hurts the appeal of commodities priced in USD. EIA all but confirmed API's crude draw number yesterday, reporting an inventory draw of ~7.4 million barrels. Gasoline inventories continue to build which indicates that refiners may be jumping the gun in anticipation of the demand recovery. 

Gold spot took a tumble yesterday post fed announcement and is continuing that trend this morning. At the time of writing, the precious metal is down -1.70% to US$1,780.37/oz. A move higher in yields and the USD pushed gold down as the fed leans more towards a hawkish tilt. The double whammy pushed gold back to mid May levels. Other metals such as Nickel and Silver also saw a pullback in price. 

Fixed income and economics

Markets are in risk-off mode this morning with Treasuries well bid and North American equity futures looking to add to their losses from yesterday. Much of this souring sentiment stems from the lingering effects of the FOMC’s policy update that left many in quandary. To say the language in the statement and Chair Powell’s post-release press conference was confusing, would be an understatement as the more hawkish than anticipated set of overall communications was met with comments that made even that tone uncertain. The Committee reinforced expectations for when tightening will commence in terms of tapering (late year) and rate hikes (2023 or potentially earlier) but offered more aggressive signals in this direction. Most of the immediate market reaction was on the back of the updated dot plot that showed a large swing in the forecasts for the latter that could see two tightening moves within two years (the median FOMC consensus forecast). We’ve gone from 11 of 18 expecting the policy rate to remain on hold in 2023 to just five members now expecting a hold. Note that there is a wide dispersion of forecasts for the number of hikes in 2023 ranging anywhere from one hike (2 participants), 2 hikes (3), 3 hikes (3), four hikes (3) and six hikes (2). Is your head spinning yet? The longer run neutral rate projections were unchanged and Chair Powell said in the press conference that the committee had a discussion on progress and that “while reaching substantial further progress is still a ways off” but that the members would “assess progress in coming meetings”. He added that markets could infer this as the start of the “talking about talking about” tapering, but then said that all projections should be "taken with a big grain of salt”. Thanks for that Mr. Chairman. Inflation remains “transitory” until further notice while the Committee’s forecasts for GDP growth, headline inflation and core inflation were all revised stronger than the March figures. All in all, this was all very subjective with participants likely keeping their desire to make any moves based on upcoming data releases and the progress of the economic reopening.

Chart of the day
 

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Quote of the day
 

Memories of our lives, of our works and our deeds will continue in others. - Rosa Parks