Fed Minutes: It puts the Fed in the spotlight again

Outlook

This week delivers a ton of economic data but today attention will turn, as usual, to the Fed minutes. Parsing every word is tiresome and hardly ever delivers usable results, but never mind. It puts the Fed in the spotlight again.

We also get new orders, housing starts, and industrial production, plus a 20-year Treasury auction.  We also get a fresh GDPNow from the Atlanta Fed but it’s for Q4. The most recent one is 3.7%. 

US yields are falling, notably the 10-year. Yields down, price up, so either less supply or higher demand. With the stock market wobbling and even gold and other metals falling, it’s no surprise US yields are down. We don’t have to accuse TreasSec Bessent of meddling with supply. Reuters’ Dolan has a story on how AI may well be moving Treasuries via productivity assumptions.

Lurking the shrubbery is the Supreme Court decision on the underpinning of Trump tariffs. A ruling against the “emergency” argument would be nice but not change much, since other avenues are out there. The meaning of the ruling has more to do with the reputation of the Court in the public’s eyes and any hint of breaking away from Trump.

Tidbit: The FT reports ECB chief Lagarde will step down ahead of the end of her term to allow France and Germany to pick the next chief. Remember that the Germans hold the view that they should be the ones with the ruling vote. Other reports (Bloomberg) say it’s not yet a done deal. If Germany wins, there is a general feeling that the traditionally hawkish/fiscally responsible would come back. This is total speculation but fairly positive for the euro.

Forecast

We may be seeing euro support forming near the 50% retracement line at about 1.1824. The NZD already delivered a rising MACD now despite the Reserve Bank declining to sound as hawkish as expected. The ECB has ended changes in rates in either direction. Japan will be hiking again, if on an unknown and unconventional timing.

The two currencies where rate cuts remain likely are the UK and US, sort of bucking the global trend. Both currencies “should” be weaker on this assumption. A wild card might be the Fed minutes disclosing that the members are still more concerned about inflation than about the labor market softness. That would put some starch in the dollar’s spine, if also raising the specter, again, of the Trump attack on Fed independence.

We can’t demonstrate, let alone prove, that every small Trump success/failure changes attitude towards the dollar. His successes (tariffs, TACO notwithstanding) were dollar-negative. Are his failures dollar-supportive? We see failures mounting, and to culminate in the mid-term elections he is trying to rig. It seems weird to say so, but the political climate turning against Trump may be good for the dollar, or at least reduce negativity.

Food for Thought:Those outside the US may not care much, but Constitution-minded care plenty. Lawyers at a network late night talk show (CBC) told the host (Colbert) he couldn’t have a political candidate guest because the US government was contemplating limits and punishments. He talked about the guy anyway and proceeded to put the interview on YouTube, where it got tens of millions of views, more than if the interview had taken place on TV in the first place. Sweet irony and another blow to Trumpian bullying. It may not be much but it’s in keeping with anti-Trump protests that are more than citizens with placards.

Meanwhile, Australia’s ban on social media for kids under 16 is hugely popular all over the world and many countries especially in Europe are working on it. Trump, who paid no attention to his kids and knows nothing about any kids, opposes such as effort. “Get ‘em young and you have ‘em for life” is his idea. Sound familiar?

While everyone loves a comeuppance, the worry is that losing at anything infuriates Trump and makes him more reckless. We know he likes polls and the latest one shows a stunning 55% disapprove of immigration policy, the highest since he took office a year ago. And the stock market getting the willies runs counter to his perception that equities are his mirror and he gets credit for the gains. We are likely in for a big, fat outrage to divert attention.