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How much will the Fed cut on Wednesday? How will USD do against the EURO?
  • 25bp USD drops
  • 25bp USD rises
  • 50bp USD drops
  • 50bp USD rises
  • No cut USD drops
  • No cut USD rises
View Poll..
This thread was started in response to the Poll:

Fed & USD

 
Ashraf Laidi
London, UK
Posts: 0
28 days ago
Sep 19, 2019 11:05
In reply to tradingwala's post
Hi Tradingwala,

Thanks for your comments. Let's see them first buying back bonds --perhaps around Q1 2020. The latest liquidity injections suggest that renewed balance sheet accumulation is highly likely. https://twitter.com/alaidi/status/1174260108886458370

Ashraf
tradingwala
Mumbai, India
Posts: 0
28 days ago
Sep 18, 2019 20:33
In reply to Ashraf Laidi's post
Thanks Ashraf for explaining various points. Its always a pleasure to read your incisive analysis. When it comes to inter-mkt analysis, you are at the apex level!

I believe we will see some day FED starting buying equities!
When do you see it, if at all?
May be after 2020 United States presidential election, probably 2nd half of 2021 or much before that?
Ashraf Laidi
London, UK
Posts: 0
30 days ago
Sep 17, 2019 12:07
In reply to Faisal's post
Thanks for your insights. Saudi should probably start thinking about the way it manages its USD peg.
Faisal
London, UK
Posts: 0
30 days ago
Sep 17, 2019 11:59
In reply to Ashraf Laidi's post
Good points Ashraf, Thank you for your insights.
Ashraf Laidi
London, UK
Posts: 0
30 days ago
Sep 17, 2019 11:56
In reply to Faisal's post
Hi Faisal,

I strongly agree with your point about spiking oil prices hitting the US consumer and it is for THIS VERY reason that TRUMP will NOT make any armed strike against Iran (he will escalate the rhetoric and threats) but he knows too well that any actual military action will produce $80 or $90 oil, which will jeopardize the ONLY REMAINDER cylinder of the US economy i.e. the ONLY hope for his re-election.

This helps explains why Trump was entertaining a meeting with Rouhani. It also explains why Trump had a a not-so publicized falling out with OPEC and Saudi about oil prices several months ago.

As for the 9/11 of the energy world, I have a big problem with this analogy:


i) 9/11 was a total surprise, whereas blowing up Saudi oil facilities is NOT AT ALL a surprise given the several attacks over the past 2 years and the ongoing war in the region.

ii) 9/11 spectacularly was a disaster for the economy and human lives, whereas (Saudi oil facility can be addressed, replaced, substituted, relieved). Yes, it will be costly but probably more of a boom for the oil world than anything.

As for you claiming Fed did not respond right away to Sep 11, that is simply wrong: On Sep 11, Fed, ECB, BoE, BoJ, SNB and BOC each cut rates that day in addition to providing liquidity injections. Yes, the oil attacks disrupted nearly half of Saudi's oil, but do not confuse disruptions with erosion or, obliteration. It's not like half of Saudi oil is totally gone. They can dig it back up.

Ashraf



Faisal
London, UK
Posts: 0
30 days ago
Sep 17, 2019 11:21
The risk is there won't be a cut! We have yet to see a response from the US and Saudi's on this infrastructure attack... this is the 911 to the energy world, it happened in Saudi today, it can happen all over the world tomorrow.

Markets aren't taking it seriously because there is no response from the US, once they respond then the market will respond, I suspect Oil will go to $80-90 as it will become a precious commodity again.

The impact of higher oil prices will certainly be felt by the consumer, we saw exactly what happened to the British consumer and inflation straight after Brexit vote.

The fed would be in their right mind to cut, but why the hurry? there has been no response from Saudi or the US, so why not wait a month and respond by a cut once you know the outcome.

Remember the US did not respond to 911 straight away, they waited. The fed waited too, it was a coordinated response when they went to war with Afgan and Iraq to no upset the markets and the markets responded by moving higher.

The risk is definitely for a no-cut tomorrow, they can deal with a 4-5% drawdown tomorrow rather than a 20-30% drawdown next month.
Ashraf Laidi
London, UK
Posts: 0
30 days ago
Sep 17, 2019 11:09
In reply to tradingwala's post
Hi Tradingwala,

Thks for your contribution. Im afraid Ill have to disagree, Not only the oil spike could turn out to be temporary, but sub-target inflation has been a problem for the Fed for the last 12 months (core pce under 2% since Sep last year).

You could also look at the situation from the angle of "what would happen to the USD and yields if they do not cut?" The answer would be a very ugly trifecta of rallying USD and plunging equities. There is no way around it.

Arguments for keeping rates unchanged are decent labour markets and OK US consumer, but of all this can easily be endangered by a simple deterioration in the trade war (not easy from this point) and another quants crash like we saw 2 weeks ago.

Your argument may be correct in the sense that we get a bigger dissent than expected. i.e. as many as 3 or 4 FOMC members vote against a rate cut. That would also be highly negative for stocks.

Ashraf
tradingwala
Mumbai, India
Posts: 0
30 days ago
Sep 17, 2019 6:07
Vote: No cut USD rises

Changing my answer after yesterday's wild oil rally with uncertainty ahead!
Last Option 6 = No cut USD rises
tradingwala
Mumbai, India
Posts: 0
30 days ago
Sep 16, 2019 19:32
Vote: 25bp USD rises

Though US economy is doing good with strong labor market & ~2% inflation (FED's target), there are many headwinds/risks due to trade war with China, uncertainty with Brexit, global economic slowdown, geopolitical tensions etc. So, 25bps cut is given.
Remember STRONG US ECONOMY = STRONG US DOLLAR. With buoyant economy & weakness elsewhere, a rate cut won't result in weak dollar.
Hence, option 2 i.e. 25bp USD rises!