Macro Man

"Future policy adjustments will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information."

It's been a while since a single sentence created that much wealth in the span of a few hours. Macro Man's email box is full of nanoanalysis on yesterday's Fed statement, with guest literature PhD's poring over each single word in agonizing detail. Macro Man finds this periodic foray into textual analysis to be nearly as tiresome as Trichet's monthly verbal striptease around the word 'vigilant.'

However, the naive, simple explanation is probably the best in this case. The statement has changed, ergo the Fed's viewpoint must have changed. By no longer suggesting that the next move on rates will necessarily be a tightening, they have therefore opened the possibility that the next move could be an easing. It's all down to the data.

In this, the Bernanke Fed has proven to be more prescient than its Greenspan predecessor, which went from a tightening bias in December 2000 to cutting rates in January 2001 without passing Go or collecting $200.

In any event, the reaction has been predictable. Liquidity is the oil that greases financial market rallies, and yesterday afternoon was no exception. However, it's probably wise to remember the outcome of a similar rally in January 2001, when the Fed actually started easing. Sure, the SPX had a super day (indicated by the arrow), but it all ended in tears.

And while Macro Man has covered his shorts, he is not yet prepared to go aggressively long all things risky. The Fed has raised a small risk of letting an inflation cat out of the bag; while this is not as significant a danger as it was last April/May, Macro Man believes it was telling that the curve steepened and breakevens widened yesterday.

Indeed, breakevens (below) are near recent highs. Regular readers will know that Macro Man views a blowout in breakevens as the single largest threat of a major correction in risky assets, the kind of correction that throws the Brazil out with the bathwater.

We just may find that if (and yes, it's a big if) breakevens widen to, say, 2.65%, Helicopter Ben may land the aircraft without dispensing any largesse.

Maco Man was fortunate in the timing of his trades this morning, as the FX carry basket opened on the back foot but has subsequently rebounded, thanks in part to robust UK retail sales. Macro Man has implemented every leg of the trade, including the long GBP; despite his aversion to sterling, he fears that the market might have a go at the dollar over the next few days. All fills for the morning's trade are listed below.