Monday, June 24, 2019

"Beyond the Fed's Pivot"

From Pension Pulse, June 21:
Jeffrey Gundlach, chief executive of DoubleLine Capital and the most widely followed bond investor, said the Federal Reserve’s dovish turn in its policy statement on Wednesday took its lead from the bond market:
The Fed is doing “what the bond market says - with a lag,” said Gundlach, who oversees more than $130 billion in assets. “The bond market definitely helped to encourage the ‘Fed pivot.’”

The Fed on Wednesday signaled it could cut interest rates by as much as half a percentage point over the remainder of this year, as it responded to increased economic uncertainty and a drop in expected inflation. The U.S. central bank’s next policy meeting will be held in July, with the following meeting in September.

In a telephone interview with Reuters, Gundlach said economic data would have to be weak for the Fed to slash rates in July. If policymakers do cut rates next month, “They are basically admitting they are behind the curve,” he said.

Federal funds futures implied traders were fully pricing in the U.S. central bank lowering rates at the July 30-31 policy meeting.

“The only way they cut is if the data is sustaining a negative tone and that we have sustained economic weakness,” Gundlach said.

“One interest rate cut is not going to forestall recession,” he added. “It increases the chances that we are headed into recession.”
In an interview on Fox Business on Wednesday, Gundlach also said Trump’s re-election chances depend almost entirely on the economy. And just last week, he predicted a 40% to 50% chance of a US recession within the next six months, and a 65% chance of a recession in the next 12 months.

Gundlach is also joining dollar bears, calling it a moment of truth for the US dollar:
With all due respect to the 'bond king' (PIMCO is quietly outperforming Gundlach's fund), the US dollar ETF (UUP) is just pulling back here and the rest of the world is still swamped in negative-yielding debt, so it's hard to get too negative on the greenback here: