When the markets believe that institutions will change course if necessary, they are putting less pressure on them



We are waiting for the US consumer price index and the two central bank (Canada, ECB) meetings tomorrow, but today there is not much left for all traders to ponder the turnaround in US assets. As mentioned above, the OECD is delighted with the $ 1.9 trillion increase, which will bring US GDP to 6.5% and the rest of the world by 0.5% to 1%. (Remember, Goldman has 8%!) Like the World Bank’s World Economic Outlook, OECD projections are not always heeded, but this time the report is the top story in the FT.

The new sunny US outlook should come as no surprise – “We always knew that, given the majority of the Dems, popular support and the determination of Pres Biden, a major bill would be passed. The additional tailwind comes from the accelerated pace of the US Vaccinations Knowing from personal experience that the first shot brings relief and amusement. Bloomberg Vaccine Tracker says, “In the US, the latest vaccination rate averages 2,169,981 doses per day. At that rate, it would take an estimated 6 months to 75% of the time To provide the population with a two-dose vaccine. “That is September, but in practice dizzying joy is already spreading like wildfire. If we don’t screw it up by reopening it prematurely and let go of our guard or the mutant strains get a new grip, the pandemic is almost over.

Joy also comes from something else – “renewed trust in the US government. Because the US has a deliberately decentralized structure for government agencies -” state rights – “the Reagan charge that” the government is the problem “has become a matter of course there is always enough evidence that the federal government backed the idea (including several “stupid” wars) without adequate credit for the opposing successes (TVA and Hoover Dam, the highway system, clean air and safe food, two) world wars, etc .) In a sense, Reagan said the US is not the country to do anything.

However, management skills are hardly limited to small organizations. It is much more difficult to manage a large organization, but it can be done. It just takes the right guidance. Trump was known to be incompetent. He mostly hired unskilled workers at high risk and couldn’t even build a few miles of wall along the Mexican border. Of all of Trump’s shortcomings, one of the cruellest is not having a plan for the pandemic. Biden may be boring, but he knows how to get the railways up and running on time. It is no longer about “making America great again” but “making America competent again”.

This excursion into socio-political life is not irrelevant for the financial markets. The confidence in the competence can pass from the vaccine project to the Treasury and the Fed, which are also staffed with experienced, qualified employees. That doesn’t mean the Bond Boys will stop berating them fed for being behind the curve, but it offers a different context of worldview. One component of management competence is flexibility. When the markets believe that institutions will change course if there is evidence of need, they are exerting less pressure.

In contrast to the Eurozone – “doing a less than excellent job with vaccinations and with sixes and sevens in order to adapt the QE to the earnings situation.” ECB Meeting on Thursday with no expected changes but talk of adaptability to conditions and the desire of some members to exercise control creates a chaotic understanding of the policies ahead.

Now consider that there are two major countries in which the policy is inflexible – “Switzerland and Japan. Switzerland has its own ideas about what is needed and preventing the Swiss franc from appreciating excessively is high on that list. If that is means an occasional crash against the euro and dollar that’s fine. In Japan, curve control is policy, so action against recalcitrant yield changes is in place. If that means the yen depreciates to 110 or 120, so be it. Don’t throw me in the Briar Patch, Br ‘er Fox.

In both cases, this is not to be criticized, but to be recognized that from the perspective of the market participants a risk is known.

The least known place of risk is the UK. We have a teetering between yes, negative interest rates and no, never negative interest rates, as well as talk of Brexit inflation and genuine, serious problems with the establishment of customs departments in ports that are apparently far behind a reasonable schedule. And yet the pound keeps bouncing up, possibly due to the same can-do beliefs we are beginning to see in the US. Can the UK “make” Brexit? Yes, of course, if not particularly good.

We will receive a risk perception test this week in the form of responses to multiple Treasury auctions. Remember, it was the lousy offer in the 7-year auction that sparked all this earnings turmoil. Today we have an auction of $ 58 billion in 3 years and tomorrow we have $ 38 billion of 10 year banknotes. Thursday it’s $ 24 billion long tie up. Says Bloomberg, “Analysts are still seeing the 10-year Treasury Department’s return hit 2% if quickly revalued to a normal economy.”

We agree Prices increase in the natural course of things, but an increase of 40-45 points or a gain of about 30% would be excessive depending on how quickly it arrives. If it happens this week, trust in the institutions will be out the window. But it doesn’t happen this week. It probably won’t happen this quarter. The rate of change is important. But stay tuned.

Fun treat: They’re back in Venezuela – “A reader sent us this nice message about the central bank’s plans to introduce three new banknotes: 200,000, 500,000 and one million bolivars.” But with inflation skyrocketing, the highest face bill is worth only $ 0.52 at the official rate. “Unfortunately, if you do a general Google search for the current exchange rate, you get a zip code. This is basically not tradable.

In the 1980s, when it was evident that the central bank was going to devalue, we received a panicked call from a customer who did not have access to the international banking system (like the multinationals that provide an intra-group loan from the Venezuelan entity to () say) Germany and get permission from the central bank to sell the bolivar for Deutschemarks). We advised the customer to buy and store a few thousand boxes of good scotch and then keep the receipt until the dust went away. It worked.

US Politics: The Republican Party turned down a Trump request to stop using his name for fundraisers (because he wants all contributions to go solely to himself). Trump and some of his pals are being investigated by the state of Georgia over about five or six changes, to which blackmail was just added. A member of Congress is suing him and his cronies for inciting a January 6 riot, and another member of the NAACP is suing him under a law nicknamed the Ku Klux Klan for cracking down on people who have “violence, intimidation, or” apply threat “to prevent someone from performing their duties.

New York State is now adding a new one to its diverse collection of fraud cases against Trump, resulting from a loan for a Chicago project that was given two-thirds by the lender for a partial repayment of one-third whether Trump is forgiving as a taxpayer Reported income.

Meanwhile, the Republican Party is tearing itself to shreds. Florida left the list of people to leave the party in Arizona and Texas by just 36,000 after the elections. Trump supporter Graham said Trump can destroy the party and has a dark side, but he has “magic”. The party itself doesn’t believe magic can win votes, and the only way to win elections is to keep the Dems from voting. As a result, there are dozens of voter suppression measures in several states, including the aforementioned Georgia.

This is an excerpt from “The Rockefeller Morning Briefing”, which is much larger (approx. 10 pages). The briefing has been published daily for over 25 years and represents experienced analysis and knowledge. The report provides in-depth background and is not intended as a guide to trading forex. Rockefeller produces other reports (in spot and futures) for trading purposes.

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