The structure of the market has changed

Posted: 2018-07-30 12:00:24 | Author: Predator Research Predator Research

Orderboard & Flow

Those who caught last weeks update were keenly focused on the US-EU Auto-Tariffs event where Trump and European Commission President Jean-Claude Juncker ultimately agreed to negotiate lower barriers to transatlantic commerce and put auto tariffs on hold.

In related news, data on Friday showed that the U.S. economy grew 4.1 percent in the second quarter, its fastest pace of expansion in nearly four years.

These positive developments lead US President Donald Trump to suggest that future trade deals would spark further expansion as he pursues a hawkish trade agenda.

Treasury Secretary Steve Mnuchin offered his support by suggesting that the US economy could maintain these impressive rates of growth for years to come.

That could happen.

Unfortunately, while net exports contributed 1.06 percentage points to second-quarter growth, the most since 2013, some analysts suggest that producers may have front-loaded some goods for export ahead of the tariffs. Number details reflected a 9.3 percent gain in shipments abroad, boosted partly by a surge in soybean exports.

The International Monetary Fund suggested earlier this month that the United States can be expected to post economic growth of 2.9 percent this year, but data released last week suggested that housing could be poised for its broadest slowdown in years as residential investment contracted at a 1.1 percent rate.

After tax incomes adjusted for inflation increased at a 2.6 percent annual pace while the US central bank’s preferred price index - Core PCE - rose at a 2 percent annualized rate last quarter.

Given this lead up to the FOMC Rate Decision on Wednesday August 1, no change in policy is expected at this time.

Looking farther ahead, the FOMC is expect to push the interbank federal funds rate to 3.4 percent by the end of 2020, from its current range of 1.5 to 1.75 percent.

Those expectations could change with the release of Non-Farm Payrolls data on Friday where economists predict the addition of 193k jobs and an unemployment rate of 3.9%.

For many the average hourly earnings component will be the more important metric amid rising inflation concerns.

Those same concerns are likely to cause the Bank of England to raise its policy rate to 0.75% on Thursday despite mounting BREXIT risk.

Tech investors came face to face with the risk of projecting current conditions too far into the future last week after Facebook fell 20 percent in a single day.

The sell-off set fire to $120 billion of shareholder value in the biggest single-day loss for an individual stock in history.

Other tech companies felt the knock-on effect with Twitter Inc. dropping 21 percent on Friday after it released results showing user growth has stagnated.

Twitter and Facebook both blame their disappointing usage statistics on efforts to clean up their platform, stricter privacy rules in Europe and changes to the way the services are used, but activists are openly calling for change.

The current US expansion is the second longest on record.

If the Federal Reserve feels compelled to take away the punch bowl before inflation gets out of hand, the entire market may need to reprice for a future that looks very different from the one expected today.


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