One down, four to go

Well, by the sound of it, we're one down, four to go in terms of lift-off next month.  Dennis Lockhart's comment that he is "very disposed" to put rates up next month is about as explicit a non-binding pre-commitment as you can get.    One would have to presume that Jeff Lacker, traditionally a hawk, would also fall on that side of the fence, so perhaps in reality it's "two down, three to go."

So of course, equities ripped and the dollar lost ground today, because #LOLMacro.  Macro Man's more aggressive pals at the 'Squid might point to their own Jan Hatzius re-affirming his bid to join a rather literary indie music group as a rationale for post-payroll price auction;  your author prefers to chalk it up to positioning, algos, and the calendar.   LOLMacro indeed.

It seems reasonable to posit that the rally-sellers will emerge in Spooz over the next half percent or so; stripping away the bells and whistles of a candle chart, a simple line graph illustrates where the futures have typically failed on a closing basis.  As you can see, it's not terribly far away.

The euro, meanwhile, is starting to remind Macro Man of his collegiate attempt to read Henry James for a literature class; it's wearisome in the extreme and leaves one without the will to press on.  Contrary to Macro Man's expectation, the yen has been a much better trade.   Of course, the commodity complex (both currencies and underlying) and selected EM have been better still, so there you go.

The zillion dollar question, of course remains whether the Fed can engineer some sort of policy normalization without creating a negative spillover.  After six-plus years of QE and ZIRP (and at least another one in the pipeline outside of the US) it is of course tempting to answer with a resounding "no."  However, it is worth recalling that equities typically don't properly crumble until financial conditions get restrictive....and Yellen has been at great pains to promise that that won't be the case for a long time.  Then again, what the Fed thinks is restrictive and what the economy/markets feel as restrictive aren't always the same thing.

That credit spreads have started to widen is telling; that phenomenon is usually a (very early) precursor to the top of the economic and equity market cycle.   However, it seems premature to try to identify the ding-dong highs of the cycle before the Fed has even removed the ladle, let alone to punch bowl.

As such, it is perhaps more proper to regard the lift-off not as the beginning of the end, but as the end of the beginning.