The Dilemna of Trading and Investing

Upon the release of the FOMC meeting minutes, the market took a hit. However, the panel showed a clear sign of the willingness to move forward with trimming $120 billion of bonds purchase. For one, the committee does agree that inflation progress has been met. Yet, the second goal of maximum employment is debatable. Nonetheless, if the labour market’s progress continues to heal at an accelerated rate, it is clear that tapering is on the horizon.

The Uncertainty Ahead

Since the July FOMC meeting, many things have unfolded. First, we have a robust July employment report which saw a jump of 943,000 in nonfarm payrolls, while the jobless rate for that month dropped by 0.5% to 5.4%.

On the flip side, we saw a risk to the growth momentum when the consumer sentiments and retails sales saw weaker than anticipated readings.

In recent days, we realized the impact of the delta variant that caused what some economists described as a “summer chill”, as seen with a slow down in spending on credit and debit cards. Such moderation lies in reduced spending on leisure services, travel, entertainment and restaurants/bars.

Commodity Prices and Bond Markets evolves

Concurrently, we also see a broad based decline in commodities such as crude oil, which is a sign of the disinflationary signal we are receiving from the declining bond yields. Falling from the peak of 1.75% at the end of March, the 10-year Treasury notes have settled around the 1.25% range. Speculative-grade corporate bonds have also seen a poor performance.

How will Uncle Powell Position in Jackson Hole Meeting?

It is not the first time the Fed is facing a multitude of conflicting realities. Pika World expects Uncle Powell to balance the rising inflation with the undercurrent fall in commodity prices coupled with a lower long term yield for Treasury bonds.

On the other isle, he would also consider that robust job reports are diluted by signs of Delta impact on the general economy. Moreover, with the reopening of schools and the soon to end additional jobless benefits, the route of step-up vaccination may not always augur better growth days ahead.

Collectively, will Uncle Powell gives blessing to the market? We are here to observe.