The U.S. Federal Reserve's balance sheet consists of the Fed's portfolio of U.S. Treasury and government-guaranteed mortgage-backed securities (MBS). Along with controlling short-term interest rates, the balance sheet is one of the Fed's main instruments for conducting monetary policy in order to execute its mandate of maintaining moderate interest rates and full employment. Since the global financial crisis in 2008, and then again during the COVID-19 pandemic-induced economic lockdown in…

The headline Consumer Price Index moderated to +8.5% y/y in July, from 9.1% in the prior month, while the core index proved more sticky, staying at +5.9% y/y

The NFP release was a big upside surprise. Unemployment dropped to 3.5%, and the economy created 528K jobs during July (vs 250K estimate). Expectations are now for another 75bps hike in September, with all eyes on today's CPI release. Last week saw both the RBA and BoE raise rates by 50bps, with the BoE's starling communication of 13% inflation by year-end and the onset of a recession. Friday sees UK…

According to the Oxford dictionary, a market is an area and occasion where people buy and sell goods. Markets come in a vast array of types, specifically financial and physical. In this article, we'll break down what a spot market is, what it does and how it differs from derivatives markets. What Is A Spot Market? A spot market is a space where securities, financial instruments, or commodities are exchanged…

According to the International Monetary Fund (IMF), a price is the amount of money that a buyer gives to a seller in exchange for a good or service. Prices come in all shapes and sizes, depending largely on the asset class in question. Commodities, shares, crypto and currency are all subject to pricing. For instance, currencies are priced relative to one another in terms of an exchange rate. Assets such…

Major central banks have implemented aggressive rate-hike cycles in order to combat surging inflation, but fears of recession make their job difficult and their forward guidance unclear

The world of finance is composed of assets, markets and participants. It's the dialogue between each facet that facilitates the process of price discovery. However, without base levels of liquidity and participation, efficient asset pricing grinds to a halt. Read on to learn more about illiquid assets and what they mean to active traders and investors. What Is An Illiquid Asset? An illiquid asset is a good or service that…

The BoE delivered its biggest hike in twenty-seven years today, but moderated its guidance, while projecting recession and higher inflation ahead

Fed officials start preparing market for further rate hikes.

The RBA delivered its fourth straight rate hike, but changed its rhetoric in a way that could be a precursor of more moderate moves ahead, sending AUD/USD lower

The 10-yr real rate is just 7bps from 0 (black line chart), and the 5-yr is 7bps below 0 (red line chart). Given that interest rates are included in the denominator of the time value of money, this deterioration is supportive of present values. I.e. it is acting against the whims and desires of the Fed's stated intention of controlling inflation.