Tag Archives: 2018 May 14

Centrists Are Set To Take The Center Stage In Fed

This article originally appeared on FXStreet.

John C. Williams of San Francisco Federal Reserve nominated as a successor of William Dudley as New York Federal Reserve President and permanent FOMC member.
The academist economist and the PIMCO advisor Richard Clarida set to win the nomination for Federal Reserve vice-chairman seat in Congress on May 15.
The two nominations are likely to confirm the centrist path of the policymaking authority with the gradual path of monetary policy normalization.

While the appointment of the current chairman of the US Federal Reserve might have been a bit of a surprise for markets betting on more ideologically connected people with the US President Trump, the nomination of John Williams for the New York Federal Reserve Bank President and Richard Clarida for the post of Federal Reserve vice-chairman looks like it is some kind of plan.

The top Federal Reserve positions, the chairman of New York Federal Reserve Bank, the only permanent seat in the national board of the US Federal Reserve Bank and the vice-chairman of the Federal Reserve Bank in Washington DC are at stake with centrists set to take the nomination.

Both, the economist Richard Clarida nominated as vice chairman of the Federal Reserve and the appointment of John Williams to the influential post of president of the New York Federal Reserve confirm the outlook for centrist Fed with Clarida's nomination hearing in committee scheduled for May 15.

Centrists policymakers are likely to ensure the continuity of the gradual approach to reducing recent monetary stimulus.

With a strong academic background from Columbia University and financial markets background shaped as an advisor to the world’s largest bond fund (PIMCO), Richard Clarida appears to advocate low neutral rate and the Fed's inflation-targeting framework.

As managing director and global strategic adviser at Pacific Investment Management Co. and an economics professor at Columbia University, he would balance Chair Jay Powell's banking and finance background.

Clarida’s centrist view was expressed recently with the economist noting in December last year that "the market should probably pay more attention to the fact that perhaps Goldilocks is a little too relaxed about inflation."

With the latest round of inflation data confirming that inflation has breached 2 percent, the key question is how will policymakers handle inflation above 2 percent. Officials now expect core inflation to reach 2.1 percent by the end of 2019 as the economy moved further above its potential and resource utilization continued to tighten while in speeches on many official the call for the Federal Reserve accepting inflation overshoot of 2 percent target for longer is more accentuated.

That means that the policymakers are now willing to accept the inflation overshoot for longer now after the prolonged period of sluggish price pressures are unlikely to overreact.

Today In Cryptocurrecy: CoinDesk Consensus Kicks Off, Eisman Says Cryptos Have No Purpose

The cryptocurrency market started off a big week with sluggish performance on Monday, with most major currencies trading up or down less than 1.5 percent. Here’s a look at some of the headlines that were moving the cryptocurrency market today — and which currencies were on the move.

Headlines

Blockchain Week kicked off over the weekend in New York City, and the CoinDesk Consensus conference got underway on Monday. CNBC reports that this year’s Consensus has 8,500 attendees, up from just 2,700 attendees last year. Consensus is one of at least 20 blockchain-related events taking place in New York this week focused on the cryptocurrency world, and the event has historically provided a boost to crypto prices.

JPMorgan analyst Shawn Quigg said on Monday the publicity surrounding Blockchain Week will likely provide a trading opportunity in Advanced Micro Devices, Inc. (NASDAQ: AMD). Quigg said AMD stock has averaged a 15 percent gain in the month following the Consensus conference over the past three years.

Blockchain Week isn’t without its detractors, and Neurenberg Berman portfolio manager Steve Eisman said on Monday he sees no purpose for cryptocurrency, adding that nobody has been able to demonstrate to him the supposed value that cryptocurrency adds for investors. Eisman was depicted by actor Steve Carrell in the movie adaptation of Michael Lewis’ book “The Big Short.”

Price Action

The Bitcoin Investment Trust GBTC (OTC: GBTC) traded at $14.37, up 1.9 percent.

Here’s how several top crypto investments fared Monday. Prices are as of 3:45 p.m. ET and reflect the previous 24 hours.

Bitcoin gained 1.2 percent to $8,786;
Ethereum gained 0.4percent to $737;
Ripple declined 0.1 percent to 74 cents;
Bitcoin Cash declined 1.0 percent to $1,469;
EOS declined 4.7 percent to $14.29.

The three cryptocurrencies with at least $1-million market caps that have made the biggest gains over the past 24 hours are:

Global Cryptocurrency: $4.1-million market cap, 295.7-percent gain.
Nullex: $8.0-million market cap, 121.7-percent gain.

FujiCoin: $1.4-million market cap, 85.6-percent gain.

The three cryptocurrencies hit hardest in the past 24 hours were:

BunnyCoin: $3.8-million market cap, 44.7-percent decline.
Pure: $10.1-million market cap, 38.6-percent decline.
CHIPS: $5.9-million market cap, 24.5-percent decline.

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How An iShares ETF Protects Corporate Bonds From Inflation

Investors have fixed-income exchange traded funds dedicated to hedging interest rate risk they can choose from. A new fund features a hedge of its own, but it is an inflation hedge.

The actively managed iShares Inflation Hedged Corporate Bond ETF (CBOE: LQDI) debuted last week. The new fund can be seen as the actively managed inflation-hedged answer to the iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSE: LQD), the world's largest corporate bond ETF.

What Happened

The new ETF will achieve its inflation-hedging mandate through the use of inflation swaps, contracts in which the ETF will make fixed-rate payments based on notional amount while receiving floating-rate payments determined from an inflation index,” according to ETF Trends.

LQDI can use other instruments to diminish inflation risk, including Treasury Inflation Protection Securities and interest rate swaps.

Why It's Important

The new ETF's primary holding is the aforementioned LQD with an inflation-hedged overlay. LQDI's weighted average maturity is 11.83 years. The new ETF's effective duration is 7.87 years, below LQD's effective duration of 8.4 years, according to issuer data.

Nearly 84 percent of LQDI's holdings via LQD are rated A or BBB. Over 11 percent of the bonds in the portfolio are rated AAA or AA. BlackRock iShares’ James Mauro and Scott Radell are LQDI's managers.

What's Next

The April reading of the consumer price index showed consumer prices rose 0.2 percent, but that was slightly less than the forecast. Sustained increases in the CPI could result in a following for inflation-hedged strategies such as LQDI.

“A more closely followed measure that strips out food and energy, known as the core CPI, rose a smaller 0.1 percent last month. That was half as much as Wall Street expected,” according to MarketWatch. “The consumer price index has risen 2.5 percent in the past 12 months — the highest rate in 14 months.”

LQDI charges 0.2 percent per year, or $20 on a $10,000 investment, a favorable fee among actively managed ETFs.

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