Labyrinth Capital

Market futures for September now: Maintain 3.75% : 46% from 24% 🔺 Hike to 4.00% : 53% from 60% 🔻 Hike to 4.25% : 0.9% from 22% 🔻 labyrinthcapital.co.uk

Warsh: In crisis mode forward guidance is prudent. In more benign situations we must pull back.

Warsh: We are not spoon feeding markets. The market gives us their own judgement instead of echoing what we say back to us.

Warsh: We step back in trying to influence market judgements. Across the treasury curve, the market rates are higher and we are observing them.

*In absence of forward guidance* Warsh: I want a direct unfiltered messege from markets. A free market... not trying to interfere with market signal...they are reacting to events more directly...we have seen a material tightening in nominal rates and are observing this...

Warsh: AI investment is laying groundwork for future growth

Warsh: Less forward guidance may have influenced market moves

Warsh: When necessary and appropriate, we will not be scared to act (on rates)

Warsh: Inflation cannot be cured in 9 weeks

Warsh: Nominal and real yields are higher across the curve.

🚨Fed futures continues to price in 60% chance of 25bps rate hike in September. labyrinthcapital.co.uk

FOMC statement here. 3 dissenters in favour of 25bps rate hike. labyrinthcapital.co,uk

⚠️Fed keep rates at 3.75% labyrinthcapital.co.uk

⚠️FOMC in 1 hour. Market consensus is for the Fed to maintain neutrality in rates at 3.75%. A surprise of any kind would come through a raising of EFFR likely to 4.00%. This would be corroborated by inflation expectations rising primarily and the continued Strait Closure. Not personally expecting this. Believe it is still too early in Warsh's tenure to be able to convince the rest of the board to act *out* of market favour. We will likely get more commentary on Warsh's new advisory board to the Fed as well as ideas for the balance sheet. labyrinthcapital.co.uk

⚠️Confirmed oil flow through the Strait of Hormuz has collapsed to ~4 MMbpd on a trailing 10-day average basis. Down from ~15 MMbpd in late-June and at the lowest level since late-May. labyrinthcapital.co.uk

Forward guidance was introduced around 2008 because rates were at the zero lower bound. Since 2008, markets have been swimming in extremely cheap credit which was exacerbated during COVID. Thats where we witnessed one of the greatest asset bubbles in history where digital pictures of penguins were selling for hundreds of thousands of dollars and crypto projects were flying. The fact Warsh and likely more members are pivoting back to pre-2008 conditions should give everyone the impression of how rates will function from now on. Study 40 year interest rate cycles and you'll come to the conclusion the era of cheap credit is over. labyrinthcapital.co.uk

Once again its importance to emphasise the policy pivot from Warsh. This expectation from Citadel echoes his comments from last week: Fed's Chair Warsh: Forward guidance is not the right policy for the current moment. Note that Warsh is only the speaker of 12 FOMC members, he holds one vote and one vote alone. His idea to pivot how the Fed manages its forward guidance and reliance on the rate futures market is only so far likened by himself. Importantly, Wednesday may reveal which Fed members are on the side of Warsh and who are not (if not Wednesday then next week at FOMC minutes). Ultimately, if more members align with Warsh's vision, it likely rules out the run-up to FOMC as a trading period - and will also encourage far more volatility in conditions. labyrinthcapital.co.uk

JUST IN: 🇺🇸 Citadel Securities expects the Federal Reserve to raise interest rates this week in a surprise move. @WatcherGuru

🔔Key Events This Week. ☄️Most volatile day: Wednesday: US FOMC POLICY MEETING Thursday: UK BOE POLICY MEETING Friday: JAPAN BOJ POLICY MEETING Heavy hitting central bank action after midpoint in the week. FOMC likely to not cut interest rates, however, be wary because Warsh made it clear in his testification before the house last week that forward guidance and affirming the futures market is what he wishes to change. ie: theres a small likelihood they do raise rates. Friday's BOJ rate decision also takes on greater importance because of what is happening in the Japanese sovereign debt markets. Across the curve the cost of their debt is out of control. Japan is having increasing difficulty with controlling its long end of the curve. Intervention has been persistent over the past 12 months. Likely that they signal more rate hikes because of rising price pressures, but they are stuck between a rock and a hard place. The reason Japan is so important is because of its position as a huge buyer of American debt. labyrinthcapital.co.uk

US PPI MOM ACTUAL -0.3% (FORECAST 0%, PREVIOUS 1.1%