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Groundhog Day: "I Woke Up This Morning After Horrible Economic News And First Question Was How Much Are Stocks Up"

Any carbon-based trader "trading" today will surely agree with every word Bloomberg's Richard Breslow, a former FX trader and fund manager, said in his note this morning.

Fight the Real Dragon

The economic numbers released yesterday can best be described with a reference to wheels falling off the bus. And it wasn’t just retail sales and PPI in the U.S. but numbers from around the world, including China. So, of course, when I woke up this morning the obvious first question to ask was, how much are equities up? It remains a reality for trading that the biggest news overnight wasn’t the Bank of Korea rate decision nor the continued deterioration of East West relations but an article written by Jon Hilsenrath in the WSJ on the rapidly diminishing likelihood of a Fed hike in 2015.

Fed Funds futures have been consistently ahead of economists and Fed speak in doubting a rate hike. Comments by Richmond Fed’s Lacker yesterday that he doesn’t know if the Fed will raise rates in October didn’t even merit a rolling of the eyes. Futures are pricing in a 4% chance for October rather than zero, just to be polite. Governors Brainard and Tarullo joining the “conditions don’t merit a rate rise at this time” camp sounded positively statesmanlike.

Last night’s article matters because the Fed’s credibility has taken a hit from interminable public bickering. A number of investors have expressed the fear that a December move might be decided to fix the damage rather than on the merits. Rightly or wrongly, it is assumed that this piece was written with the benefit of some “on background” discussions.

Goosing risk may look good on paper and buy time. But it, quite apparently, has had diminishing effect on the real economy. Central banks need to spend more time publicly arguing the necessity for fiscal policy makers to do their part and not add to the public perception of government dysfunction.

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