FED Balance Sheet Breaks the 4 Trillion level

[MacroSA]

FED Balance Sheet Breaks the 4 Trillion level for the first time.
It stands now around 3,981,420,000,000

2019-02-20: 3,981,420
2019-02-13: 4,028,431
2019-02-06: 4,026,350
2019-01-30: 4,039,678
2019-01-23: 4,047,052

https://fred.stlouisfed.org/series/WALCL

[MacroSA]

Re: FED Balance Sheet Breaks the 4 Trillion level

Something is not right

They were supposed to update the total Asset data yesterday, Wednesday 6-Mar-2019.
The update is usually uploaded after the market close every Wednesday.
They didn't do it this week!

2019-03-06: ?,???,???
2019-02-27: 3,974,590
2019-02-20: 3,981,420
2019-02-13: 4,028,431
2019-02-06: 4,026,350
2019-01-30: 4,039,678

https://fred.stlouisfed.org/series/WALCL#0

[Mega]

Re: FED Balance Sheet Breaks the 4 Trillion level

But you owe it to yourself, so it does not mean any thing, you got the World reseve currency ...............wot could go wrong?

"The sun will never set on the British Empire".................oh

[Mega]

Re: FED Balance Sheet Breaks the 4 Trillion level

Ah, news from the ECCP
https://news.sky.com/story/ecb-launc...slows-11657656

[jk]

Re: FED Balance Sheet Breaks the 4 Trillion level

the real question is whether the ecb keeps buying e.g. italian sovereign bonds, especially once draghi is gone. i think when economic forecasts were a bit more optimistic, and it was assumed [as it still is] that a german would be the next ecb bank president, that further bond purchases were in doubt. otoh, now that italy has officially entered recession, and - more importantly - germany is close to recession, i think the bond purchases will continue. i say "more importantly" because ecb policy has always been about what was best for germany.

[aaron]

Re: FED Balance Sheet Breaks the 4 Trillion level

Perhaps it was the government shutdown and they need to catch up?

[MacroSA]

Re: FED Balance Sheet Breaks the 4 Trillion level

Thank you Mega for sharing

Thank you JK for the valuable insight. And I agree with you, the ECB will keep supporting the economy with very low or negative rates.

Aaron, I think that the FED is totally independent from the government. I can't see the link you are revering to.

[MacroSA]

Re: FED Balance Sheet Breaks the 4 Trillion level

Update
The data were updated last night. There is a minor change in the total balance sheet, around -$5.5B.

2019-03-06:3,969,134
2019-02-27: 3,974,590
2019-02-20: 3,981,420
2019-02-13: 4,028,431
2019-02-06: 4,026,350
2019-01-30: 4,039,678

[MacroSA]

Re: FED Balance Sheet Breaks the 4 Trillion level

The Federal Reserve FOC Committee met yesterday and they decided to:

1. Not change the Fed Funds Rate and keep it at 2.5%
2. Continue to reduce the Fed’s balance sheet until it reaches $3.5T by end of Sep, 2019.

The Fed Balance Sheet stands today at $3.962 Trillion, down $9B from last week. If it will reach $3.5T before the end of Sep,2019, then the average Weekly Reduction Rate will be around -$20B. This reduction in liquidity will certainly put negative pressure on the financial markets and will also push the dollar upward.

The market reacted dramatically to the FED announcement. This can be observed by reviewing today’s changes in the Yields on the US Treasuries. Attach is a snapshot of today’s interest rates movement. These changes resulted in an inverted Yield Curve. The inversion came in the shorter half of the curve.

It is expected that the newly shaped Yield Curve will put the American Banks in a position where they will not be able to support the growth of the privet sector, because of the very close spread between the long and short interest rates. In addition, high employments rates and rising wages will increase the negative pressure on the US private sector.

This new economic recipe will most likely produce a recession in the US economy within the next 10 months. At that time the FED could step in to ease the liquidity pressure on markets, but it will be too late, at least for the stock market.

Furthermore, if we review the correlation between recession and tops in the stock market, we can conclude that a top in the stock market is around the corner. However, we may retest the rising trend from 2009, which was broken in Q4, 2018, before we start the major pullback. Refer to attached chart.

These are my thought and expectations.
Please let me know what are your thoughts, and how you see the affect of the FED decision on the financial markets and the US economy.

[jk]

Re: FED Balance Sheet Breaks the 4 Trillion level

according to reuters the 10Y - 3 M spread is now - 2.3 bps

[GRG55]

Re: FED Balance Sheet Breaks the 4 Trillion level

...These are my thought and expectations.
Please let me know what are your thoughts, and how you see the affect of the FED decision on the financial markets and the US economy.

- virtually zero probability of a USA recession in calendar 2019; especially now that the Fed has terminated rate increases.
- falling bond yields will help overleveraged corporations;
- falling bond yields will reduce mortgage and consumer loan rates, which will help overleveraged consumers and sectors such as construction;
- employment stats still look quite favourable;
- inflation rates, including wage inflation, remain subdued and within the Fed's 2% inflation target (e.g. the Fed's historical focus on the Phillips Curve supports their decision to suspend further rate increases);
- in other words there is no sign of "overheating" in the economy so no reason for the Fed to push the yield curve inverted by continuing to raise short term rates;
- the curve flattening doesn't concern me in the least; by virtue of its massive balance sheet the Fed has more control over the entire yield curve than at any time in the past, and the continued run-off of its balance sheet (selling longer dated assets while keeping short rates on hold) will allow it to continue to "tune" the shape of the yield curve.
- expect the yield curve to return to a gentle positive slope as economic growth improves in Q2 and beyond;
- the one wild card in all this that could result in a recession would be an further, material escalation in the trade war with China, or some other, similar stupidity out of this Administration - entirely possible, although I would hope saner minds would prevail.

As for the stock market, fundamentals mean nothing on a cyclical basis; the algos are now firmly in charge and flash crashes, computer driven irrational exuberance and other disruptions are now a permanent feature. On a secular basis I don't think this economic expansion is necessarily anywhere near over, and despite the moaning and groaning from C-suites I can't help but notice business investment remains reasonably steady in the USA. That should bode well for corporate valuations for a while yet.

[MacroSA]

Re: FED Balance Sheet Breaks the 4 Trillion level

Thank you GRG55 for the valuable input,

You have added some interesting new factors that I overlooked.

Now we just need to examine the legitimacy of all of theses factors, including mine, and try to anticipate the real affect on the economy.

My current opinion, which is now under review, is that the inverted Yield curve will cause a meaningful slow down in the US economy. Consequently, the FED will step in to avoid a major recession.
However, between now and the FED intervention we will witness serious volatility in the stock market with a good chance of a 35% pullback in most major indices.

[dcarrigg]

Re: FED Balance Sheet Breaks the 4 Trillion level

- virtually zero probability of a USA recession in calendar 2019; especially now that the Fed has terminated rate increases.
- falling bond yields will help overleveraged corporations;
- falling bond yields will reduce mortgage and consumer loan rates, which will help overleveraged consumers and sectors such as construction;
- employment stats still look quite favourable;
- inflation rates, including wage inflation, remain subdued and within the Fed's 2% inflation target (e.g. the Fed's historical focus on the Phillips Curve supports their decision to suspend further rate increases);
- in other words there is no sign of "overheating" in the economy so no reason for the Fed to push the yield curve inverted by continuing to raise short term rates;
- the curve flattening doesn't concern me in the least; by virtue of its massive balance sheet the Fed has more control over the entire yield curve than at any time in the past, and the continued run-off of its balance sheet (selling longer dated assets while keeping short rates on hold) will allow it to continue to "tune" the shape of the yield curve.
- expect the yield curve to return to a gentle positive slope as economic growth improves in Q2 and beyond;
- the one wild card in all this that could result in a recession would be an further, material escalation in the trade war with China, or some other, similar stupidity out of this Administration - entirely possible, although I would hope saner minds would prevail.

As for the stock market, fundamentals mean nothing on a cyclical basis; the algos are now firmly in charge and flash crashes, computer driven irrational exuberance and other disruptions are now a permanent feature. On a secular basis I don't think this economic expansion is necessarily anywhere near over, and despite the moaning and groaning from C-suites I can't help but notice business investment remains reasonably steady in the USA. That should bode well for corporate valuations for a while yet.

FWIW, I've noticed that since at least '91, southern New England tends to lead the US into recession by a number of quarters. I don't pay attention to the whole country as much as I pay attention to my region. But there has been a marked slowdown since fall. And it deepened in February. Job losses statewide now in the thousands in CT and RI. Had been positive through November. Problem there always seems to start at the top. Retail stays positive, but it's a very FIRE heavy region. Investment slows. Construction slows. Job losses mount. Consumption takes a while to slow down to match. Greater Boston north usually weathers the storm a bit longer. As does NY. They tend to follow later.

US total added 20k jobs in Feb. But that's a marked slowdown too. Construction was down over 30k though. First time it has been negative since 2012, iirc. FIRE jobs basically flatlined. Still feels early. But if those two go negative over the spring and don't bounce back, I'm going to stress out a bit about it. They're usually early. None of this is to say you're not right about CY 2019. Also none of this is to say I don't want to pull back and batten down the hatches for the back half of CY2019. Worth keeping an eye on anyways.

[MacroSA]

Re: FED Balance Sheet Breaks the 4 Trillion level

An Inverted Yield Curve lead to a recession, because it limits credit creation.
Dallas Federal Reserve President Robert Kaplan

https://www.youtube.com/watch?v=55_32G-42sE

[MacroSA]

Re: FED Balance Sheet Breaks the 4 Trillion level

This week update for FED Balance Sheet: -$7B
It's currently stands at: $3,955,617 million