Article / 22 August 2016 at 8:23 GMT

From the Floor: Bruised Fed reignites rate move agenda

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  • Federal Reserve vice chairman Stanley Fischer reignites rate move talk
  • September "probably too soon" for a move — Garnry
  • Emerging-market equities rally could be hit — Garnry
  • Fed looking to fiscal policy and reform to take over baton — Hardy
  • Bunds on the retreat after renewed Fed rate talk — Boye
  • USDJPY strengthening as Kuroda weighs in on yen rally
  • USDJPY options spike ahead of next FOMC and BoJ meeting — Norup
  • Oil rally hits the buffers as supply side blocks crumble — Hansen
  • COT position indicates rally was entirely led by short covering — Hansen 


By Martin O'Rourke

On the table

If we thought we might sleepwalk our way into Autumn, Federal Reserve vice chairman Stanley Fischer has changed that this weekend after he reignited rate-hike talk after waxing lyrical on the state of the US economy.

"Fischer's speech is very key stuff and it seems to point to higher odds of a rate move in September or October", says John J Hardy, head of forex strategy at Saxo Bank. "He was talking about the productivity conundrum and that fiscal reform remains key to this".

"It looks like the Fed wants to dust its hands of the key decision-making role and see the fiscal side pick up the baton", he adds.

An under-fire Fed may have decided that this is the time to dispense with its role as global central bank (as opposed to US central bank) after the criticism that has come its way particularly through 2016 as delay after delay pushed the rate-hike agenda ever further down the curve.

"Fischer was keen to stress that this was his view and not necessarily that of the Fed's but as vice chairman, he carries a lot of weight", says head of equities Peter Garnry. "By highlighting the robust nature of employment in the US, he is clearly optimistic that the US is getting close in terms of the metrics to the Fed's targets".

"The Fed really wants to move but September will probably be a little too early", he says. "A rate hike is definitely back on the agenda again though and we could see it soon if we avoid any big global shocks".

Garnry warns that emerging-market equities rally from its lows at the start of the year could fall victim to renewed rate-hike talk. "A Fed rate move would certainly put a dent in the emerging-market rally".

Bunds have also struggled to keep on to the 167 handle in the aftermath of the Fischer intervention while gold is also looking to support at the $1,330/oz, the $1,317/oz and the $1,310/oz area as a revived dollar takes its due.

Fischer speaks again tomorrow, but the real focus in the week ahead will be the central-bank jamboree at Jackson Hole beginning August 26 when Fed chair Janet Yellen takes the stage.

Dollar rallies

The dollar strengthened across the board Monday with gains against the yen particularly prominent after Bank of Japan governor Haruhiko Kuroda raised the prospect of more stimulus at the BoJ meeting on September 21.

USDJPY strengthens after Fischer/Kuroda double whammyy

Source: SaxoTraderGO

 "Kuroda's comments basically confirm our long position on USDJPY with an options expiry of 102.50", says Hardy. "We're hoping that BoJ and/or the Fed between them will help trigger a stronger dollar and a weaker yen".

 "Kuroda has basically said that helicopter money is a 'no-go' for now", says the forex head.

USDJPY was at 100.72 at 0655 GMT.

One-month USDJPY volatilities spiked overnight by four percentage points to cover both the next Federal Open Market Committee meeting and the September 21 BoJ meeting.

"We had a similar spike higher for the last cycle before options fell away again", says Jeppe Norup from the FX options desk. "Kuroda speaks again tomorrow and we can anticipate him basically repeating this message".

"EURUSD one-week is also up 1.5 vols ahead of the Yellen's Jackson Hole speech Friday".

 USDJPY implied vols have spiked to 14.82r

Source: Bloomberg

Hitting the buffers

Perfect symmetry is much sought after in the Olympics, particularly when it comes to the synchronised events, but a rarity in markets. Saudi Arabia certainly managed to achieve that in the last week, however, after its verbal intervention as to the possibility of a deal at Algeria next month on oil production wiped out the short speculative position.

"The gross short position fell by 57,000 lots and only 465 were added", says Ole Hansen, head of commodities strategy at Saxo Bank. "This is what Saudi Arabia was out to achieve — they wanted to get rid of that speculative froth".

"The problem is that a short-covering rally on its own is not very healthy and now that we see Iraq production from Kirkuk returning to the market, an end to the attacks on oil infrastructure in Nigeria and a rising oil rig count, the rally is once again fading".

Hansen expects support for both oil benchmarks Brent and WTI to come in at 38% retracement levels of $48.25/barrel and $46.50/b respectively. "Where does that leave the meeting next month in Algeria? They'll probably do nothing".

Brent was at $50.88/b at 0655 GMT. WTI was at $47.69/b.

After the Fischer intervention, it could be time to take the Fed seriously. Photo: iStock

Martin O’Rourke is managing editor at

Editor’s note: From the Floor takes advantage of's unique real-time access to Saxo Bank’s various trading desks around the globe to put our community in touch with the developments that matter to their portfolios.


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