Fed's Waller: It's Important To Communicate Reaction Function — Market Talk

1237 ET - Federal Reserve Governor Christopher Waller says that communicating the Fed's reaction function is important. "Be clear about what your objectives are---how are you going to respond to the data," Waller says while taking questions at a conference in Rome, Italy. "You reduce uncertainty in the markets and for households," he adds. Waller's comments follow Fed chairman Kevin Warsh's previous statement after June's meeting that markets perform best when they react to incoming data--and less efficiently when they ask how the Fed will react to that incoming information.([email protected])1111 ET - Federal Reserve governor Christopher Waller says that forward guidance could be a useful tool for the central bank, but could also impair policy transmission if the guidance is too strong or rigid. "Forward guidance is also problematic when there are potentially different economic scenarios confronting policymakers, each with a significant probability of occurring and requiring different policy paths," Waller says at a conference in Rome, Italy. "One cannot simply take a weighted average of these scenarios as the 'base case' and use it to give forward guidance," according to published text of his remarks. Waller says restrictive guidance tied the hands of the FOMC in 2021 and unnecessarily delayed rate increases. ([email protected])1109 ET - Federal Reserve governor Christopher Waller says forward guidance could be a valuable tool that at times significantly strengthened policymaking. Speaking at a conference in Rome, Italy, Waller says forward guidance "will continue to be useful," for the central bank, although there have been times when it has hindered, rather than helped policymaking. "When it works, forward guidance can change economic conditions more quickly than adjusting the policy rate alone," according to published text of his remarks. Waller's comments come as Fed chairman Kevin Warsh has a preference for no forward guidance from the central bank.([email protected])1104 ET - Major cryptocurrencies got a boost over the weekend, but again find themselves under pressure today. Bitcoin is struggling to cross back over the $62k mark, and other major cryptocurrencies are flagging as well. Bitcoin falls 1.3%, ethereum is down 1.6%, XRP slides 1.6%, and solana is off 1.1%. Another notable drop is being seen in cardano, which is down 4.7%. Cryptocurrencies are responding to news of Strategy Inc.'s fresh sales of bitcoin, which seem to be informing the sentiment of the wider cryptocurrency space. ([email protected])1053 ET - Investors are not surprised about Strategy Inc. confirming fresh sales from its bitcoin treasury, but the news may be having a psychological effect on how traders approach the market. "Each actual sale weakens the 'never sell' perception around the BTC treasury model and brings capital structure pressure back into focus," says Lacie Zhang of Bitget. "So today's reaction is probably less about the size of the sale itself, and more about the narrative discount that comes from making those sales real." Zhang adds that while the hit to sentiment is spurring bitcoin selling, there are other signs of prices rebounding longer-term. Bitcoin is down 1.1% to just above $62,000, according to data from LSEG. ([email protected])1025 ET - Bitcoin ETFs entered the holiday weekend on a positive note, according to data from CoinGlass. They posted a net inflow of $223.5 million on July 2, the first such inflow for these ETFs since June 12. Bitcoin had a mostly-positive holiday weekend, rising to as high as nearly $64,000, according to CoinGlass data, but is trading below $62,000 this morning. Part of the pressure is coming from sales of BTC by Michael Saylor's Strategy Inc.--although the market did have some advanced warning. "The market's reaction may be more muted than in the past following the company's recently introduced policy," says Christopher Tahir of Exness in a note. ([email protected])1015 ET - Despite Bitcoin climbing as high as $64,000 over the holiday weekend, prices are down 1.8% to $61,593 this morning in response to two sales by Strategy Inc. The firm sold a total of 3,588 BTC on two occasions--one last week and one confirmed this morning. The sales brought in roughly $215 million, but Strategy's stockpile remains enormous, at 843,775 BTC with an average price of $75,476. Strategy remains underwater on its bitcoin holdings by roughly $11.8 billion. ([email protected])1012 ET - The room is limited for German Bund yields to decline, the Investment Institute by UniCredit's Francesco Maria Di Bella says in a note. "We do not see much room for a significant decline in Bund yields due to the still-hawkish European Central Bank stance and the fact that energy prices have already substantially declined," the fixed income strategist says. UniCredit's end-2026 target for the 10-year Bund yield is 3%. The 10-year Bund yield last trades at 2.941%, up 1 basis point, according to Tradeweb. ([email protected])1009 ET - Germany's tap of the 1.30% October 2027 green Bobl on Tuesday could be its last, given its short residual maturity, The Investment Institute by UniCredit's Francesco Maria Di Bella says in a note. In addition, this bond is rather expensive, with a higher-than-average greenium--or green premium--of two basis points, the fixed income strategist says. The German Finance Agency's auction on Tuesday also includes the 2.60% May 2041 green Bund, which trades at an around 1 basis point greenium, the strategist says. Germany will auction 500 million euros in 2027-dated green Bobl and 1 billion euros in the 2041-dated green Bund. ([email protected])0951 ET - Sterling's recent rise against the euro appears driven by a short-squeeze due to a lack of new negative political developments, Societe Generale analysts say in a note. That means traders who were previously betting against sterling are buying back the currency as it rises. U.K. politicians are careful not to scare the market since former Prime Minister Liz Truss caused turmoil with unfunded tax cuts, the analysts say. Sterling is now a "little stretched" relative to the euro but "not significantly out of line," suggesting modest softness from here, they say. SocGen expects the euro to rise to 0.87 pounds by year-end. The euro falls 0.2% to 0.8552 pounds, having reached a one-year low of 0.8544 Thursday, LSEG data show. ([email protected])0939 ET - Sterling rises against the euro as fiscal concerns have eased, Ebury economist Enrique Diaz-Alvarez says in a note. Andy Burnham, the front-runner to succeed U.K. Prime Minister Keir Starmer, has insisted he will maintain the fiscal rules, but it remains unclear how he intends to fund his social and infrastructure spending priorities, Diaz-Alvarez says. Energy secretary Ed Miliband is the favorite to become treasury chief. "While his preference for fiscal expansion is a red flag for U.K. assets, the limited headroom means that realistically the hands will be tied for any occupant of Number 11." The euro falls 0.1% to 0.8550, having reached a one-year low of 0.8544 Thursday, LSEG data show. ([email protected])0916 ET - The recent widening in Swedish-eurozone interest rate differentials could prevent the Swedish krona from recovering further in the near term, Societe Generale analysts say in a note. Sweden's low underlying inflation argues against the Riksbank following the European Central Bank in raising rates, they say. "Sweden is likely to enjoy significantly faster economic growth this year than the eurozone will, and there is little to change that picture on the longer-term horizon, but a narrower rate gap is a necessary condition for a lower euro versus krona." The euro falls 0.2% to 11.0129 kronor after reaching a 12-day low of 11.0050 overnight, LSEG data show. SocGen expects it to rise to 11.10 in the third quarter. ([email protected])