This week was messy, noisy, confusing

Outlook

This week was messy, noisy, confusing. Next week we get a boatload of new info that might change that. It includes the Fed policy meeting, PCE, the ISM PMI’s, consumer confidence, nonfarm payrolls and several Treasury auctions. And some “megacap” company earnings.

You’d think PCE inflation would be the top thing, or maybe the Fed meeting, but no, it’s probably going to be payrolls, which we don’t get until Friday. The Reuters forecast is for a dip, as the chart shows. As for PCE, the last reading was 2.3% with Trading economics forecasting 2.5% for June.

As for the Fed, 97.4% of players expect no change next week. For the year-end, 42% expect one cut but adding in the others that expect more than one, it’s just about everybody. Only 2.8% see no change. These numbers are not useful except to show that this gang of bettors are not bothered in the least by the Trump war with the Fed and expect he will lose.

Trade deals continue to dominate the environment. As noted above, we are offended by the relaxed attitude toward the arbitrariness of the tariffs and the pig-headed way they came about. Tariffs of 10% are NOT the “new normal.” As some point the chickens will come home to roost and peck out the eyes of tariff-embracers,

Forecast: As usual on a Friday, traders are paring back long positions to the benefit of the dollar. It doesn’t mean they like the dollar! Keep the faith.

Tidbit: We will never understand the bond market. The 10-year TIPS—that’s an inflation adjusted note that will pay a minimum yield plus whatever inflation turns out to be—went for 1.88%. To that we have to add inflation to get the true yield, but we got stalled at finding out precisely which inflation number. If we assume CPI at 2.7% and that lasts the whole 10-years, adding 1.88% = 4.58%, compared to the plain-vanilla 10-year at 4.418%. That means a measly 0.40% premium over the term premium already embedded in the 10-year, which is surely not enough. But consolation: tendered was over $52 billion, of which $22.4 was accepted.

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