E Market Briefing For Wednesday, May 5

Less accommodation talk - on the part of US officials was today's dominant expression of concern, where higher rates (or preliminary tapering concerns) will have an impact (discounted in-advance). Janet Yellen said 'interest rates may need to rise moderately', and that's a part of the backdrop, though S&P has been set-up for decline for awhile.

Graph, Growth, Progress, Diagram


S&P managed to claw back up (a turnaround we looked for with questionable sustainability), helped not just by short-covering, but Janet Yellen 'pressed' to clarify her comment. Hah. she sure did. As follows: “It’s not something I’m predicting or recommending,” Yellen said to the Wall Street Journal online.

“If anyone appreciates the independence of the Federal Reserve I think that person is me.” Yellen, herself a former Fed chair, said she didn’t anticipate a bout of persistently higher inflation, but that if one occurred the central bank has the tools to deal with it. (And we think a 'bout' of inflation is already here.) Yellen concluded: “The Fed can be counted on to do whatever is necessary to achieve their dual mandate objectives". Really? Price stability?

And many stocks have been fragile for some time, with the backdrop of higher taxes probable, along with big growth expectations. These factors can indeed exist concurrently. Sort of interesting if you view this as 'sparring' between the Fed Chairman Powell and Treasury Secretary Yellen taking the other side.

So the Treasury Secretary talks of 'closing the spigot' of liquidity a bit, much in the way I postulated last night with probably reduced liquidity injections (refer to chart and it's available below in the highlights from last night). You run risks of overheating and I think Yellen is certainly recognizing that, regarding of her back-pedaling a bit later in the day. What's interesting is that inflation now is (where you'd expect) primarily in physical things people use of daily necessity, more so than digital services (though those are creeping up too).

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