Retail traders near max pain with USDCAD longs

Morning Brief

Last night’s FOMC meeting minutes went through as expected with little change in policy or wording of the statement. The press conference afterward may have seemed almost pointless to the casual viewer, as Chair Powell kept referring back to the statement in answering the press’ questions. To the point where we may have heard a little irritation from Chair Powell at the multiple ways, the market interrogators tried to word the same question. Basically, all anyone wants to know is when will monetary policy change. And going by FOMC tests of:

1. significant continual improvement in the economic data and
2. full employment with sustained inflation above 2%, we may find this current policy never ends. On that Chair Powell reiterated that now is still not the time to be talking about tapering asset purchases.

The Fed has seen what near full employment looks like, you only have to go back to December 2019 to see record numbers of employed people in America, but inflation was nowhere to be seen. Now we have service industries that may never get back to pre-pandemic levels as new ways of doing business means those jobs just may not exist anymore.

Companies are generally finding they are as productive or more so with fewer workers. There was a sense of confusion in Powell’s response to why the employment data was so weak, yet businesses were reporting that they are struggling to find workers. Clearly, something has changed, and it is not just that people are staying at home due to covid-19 fears. Though it may have to do with people being paid to stay at home, which may put a cap on any further talk on Universal Basic Income in the final analysis.

With regards to inflation, the buzz words were transitory and bottlenecks. This essentially refers to the base effects of starting from a very deep hole, and any progress out of that hole looking good. The fact remaining, we are still in a hole whilst covid-19 causes disruptions. And bottlenecks, again referring to the supply chain disruptions, which are starting from zero activity in global supply this time last year and are still working their way back to full-service resumption with the ongoing pandemic restrictions.

There is nothing the Fed can do about these and they are relying on the scientists to combat the disease, at which point, people will have hopefully returned to work and the ensuing economic activity will provide some inflationary effect.