tvbee
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Friends who rely on credit card cash advances and loan refinancing all understand the risks of U.S. Treasury bonds. Interest rate hikes worsen the risks of U.S. Treasuries.
Issuing new U.S. Treasuries to pay off old ones.
This is almost the same as what friends who rely on credit card cash advances and loan refinancing do.
Some friends might say the difference is that the U.S. government's creditworthiness is higher than ours.
However, the credit of U.S. Treasuries is not what it used to be.
Around 2004-2005, the Federal Reserve was clearly raising interest rates, but U.S. Treasury yields were actually falling. This is the Greenspan Conundrum in financial history, mainly caused by countries like Japan and China increasing their holdings of U.S. Treasuries, which drove up bond prices and pushed yields down.
Currently, China, Japan, India, and even Saudi Arabia and Russia are significantly reducing their holdings of U.S. Treasuries.
If interest rates rise, the financing cost of U.S. Treasuries will increase, and the Treasury Department will have to issue more bonds to cover these higher costs.
On one hand, demand for U.S. Treasuries is decreasing; on the other hand, supply is increasing, further accelerating the decline in bond prices and the rise in yields, creating a vicious cycle.
This is why Brother Feng dares to bet that the Federal Reserve will not raise rates in September. #从降息到加息，联储分歧全公开
tvbee
A signal worth paying close attention to — the tone from the New York Fed President indicates that a rate hike in September is not set in stone!
┈➤ A special role
Actually, the New York Fed President holds a rather unique position.
The Federal Reserve is the central bank of the United States, consisting of two parts: one is the Board of Governors, which is the administrative body of the central bank; the other is the 12 regional Federal Reserve Banks responsible for local financial markets.
The Federal Open Market Committee (FOMC) is responsible for setting monetary policy, including all 7 members of the Board of Governors and 5 regional Fed Presidents.
Among them, the New York Fed President holds a permanent seat on the FOMC, while the other 4 seats rotate among the 12 regional Fed Presidents.
Moreover, the New York Fed President serves as the Vice Chair of the FOMC. Therefore, the FOMC is represented by regional Fed Presidents who act as a counterbalance to the Board of Governors.
The Board of Governors, as the administrative body, has a stronger macro and political focus, whereas the regional Feds are more closely connected to financial markets — in simpler terms, they are more grounded.
Thus, the New York Fed President plays a role in balancing politics and finance within the Fed.
┈➤ A special background
Currently, the Fed is in a relatively unique short-term environment.
Former Chair Powell remains on the Board as a Governor. Although he has been very low-key, his main motivation for staying is to prevent excessive interference from Trump by nominating Waller.
Waller has not been in office long and has yet to establish sufficient prestige and leadership.
Therefore, as the FOMC Vice Chair who balances political and financial forces, the New York Fed President’s stance may carry considerable influence at this time.
┈➤ A special risk
Although people tend to be rigid in their thinking, the current risk of U.S. Treasury bonds is arguably unprecedented in history.
Rate hikes increase Treasury yields and financing costs, further intensifying risks.
So, although the New York Fed President Williams is generally described by the media as neutral, his recent remarks have been relatively dovish, suggesting inflation has peaked.
Especially today, after the 30-year Treasury yield surged, I suspect he is considering the risks associated with U.S. Treasuries.
So, I’m buying a $10 bet that there will be no rate hike in September just for fun.
A signal worth paying close attention to — the tone from the New York Fed President indicates that a rate hike in September is not set in stone!
┈➤ A special role
Actually, the New York Fed President holds a rather unique position.
The Federal Reserve is the central bank of the United States, consisting of two parts: one is the Board of Governors, which is the administrative body of the central bank; the other is the 12 regional Federal Reserve Banks responsible for local financial markets.
The Federal Open Market Committee (FOMC) is responsible for setting monetary policy, including all 7 members of the Board of Governors and 5 regional Fed Presidents.
Among them, the New York Fed President holds a permanent seat on the FOMC, while the other 4 seats rotate among the 12 regional Fed Presidents.
Moreover, the New York Fed President serves as the Vice Chair of the FOMC. Therefore, the FOMC is represented by regional Fed Presidents who act as a counterbalance to the Board of Governors.
The Board of Governors, as the administrative body, has a stronger macro and political focus, whereas the regional Feds are more closely connected to financial markets — in simpler terms, they are more grounded.
Thus, the New York Fed President plays a role in balancing politics and finance within the Fed.
┈➤ A special background
Currently, the Fed is in a relatively unique short-term environment.
Former Chair Powell remains on the Board as a Governor. Although he has been very low-key, his main motivation for staying is to prevent excessive interference from Trump by nominating Waller.
Waller has not been in office long and has yet to establish sufficient prestige and leadership.
Therefore, as the FOMC Vice Chair who balances political and financial forces, the New York Fed President’s stance may carry considerable influence at this time.
┈➤ A special risk
Although people tend to be rigid in their thinking, the current risk of U.S. Treasury bonds is arguably unprecedented in history.
Rate hikes increase Treasury yields and financing costs, further intensifying risks.
So, although the New York Fed President Williams is generally described by the media as neutral, his recent remarks have been relatively dovish, suggesting inflation has peaked.
Especially today, after the 30-year Treasury yield surged, I suspect he is considering the risks associated with U.S. Treasuries.
So, I’m buying a $10 bet that there will be no rate hike in September just for fun.
TraderS | 缺德道人
After Bitcoin dropped to 80,000 last year and then rebounded sharply, New York Fed President Williams came out to release information. The Fed has canceled the original forward guidance and gradually evolved into using voting distributions and regional Fed presidents' hints as alternative guidance. The advantage of this approach is distributed responsibility; if any unexpected news shocks the market, no one can be held accountable. However, this news flash is actually rehashing old news, with the source being an interview from last Friday.
Based on his past record, he seems more like a forerunner for signaling, and Friday's speech was essentially explaining the reason why the FOMC held steady this time. It follows the typical approach of shifting responsibility or decision-making power to the data, thereby distancing the Fed from responsibility in case of market turmoil.
From Trump's perspective, ensuring a steady rise in the stock market before the midterm elections is definitely the best plan. Theoretically, what he can do is to halt actions on Iran and tariffs to reduce inflation. Given that he recently secured quite a bit of money from Japan and South Korea, temporarily easing off on oil and taxes also has an economic basis. But practically, tariffs are one of his governing foundations and cannot be removed, and Iran won't allow easing on oil. So ultimately, it comes down to using the money harvested overseas to provide welfare and buy votes.
A bit funny, the most classic case of "cutting the boat to seek the sword" in history — the 30-year US Treasury yield is as high as in June 2007, so does that mean an economic crisis?
#30年期美债收益率创19年新高
More than one expert compares the 30-year US Treasury yield to June 2027 and then says there was a quick economic crisis last time.
The problem is, with the same 5.27% Treasury yield, can the environments with interest rates at 3.6% and 5.25% be the same?
┈➤ Long-term US Treasury yield vs. Effective Federal Funds Rate
The Effective Federal Funds Rate generally occurs when commercial banks temporarily borrow due to insufficient reserves during settlement. This is a short-term rate.
The long-term US Treasury yield, because of the longer duration, requires more term premium, so under normal circumstances, the long-term Treasury yield should be higher than the Effective Federal Funds Rate (hereafter referred to as the interest rate).
┈➤ 2026 vs. 2017
In June 2017, the interest rate was 5.25%, and the 5.27% Treasury yield was high, related to the high interest rate.
In fact, from about July 2016 to June 2017, the 30-year Treasury yield was below the interest rate, a period of yield inversion.
June 2017 was when the 30-year Treasury yield just rose back near the interest rate. At that time, the Treasury yield was not high relative to the interest rate.
Both the inversion before June 2017 and the decline in the 30-year Treasury yield after June 2017 reflect a supply shortage of 30-year Treasuries, driven by expectations of rate cuts and recession.
Currently in 2026, the interest rate is 3.6%, the 30-year Treasury yield is much higher than the interest rate, and it is on an upward trend.
Currently, there is an expectation of rate hikes, and there is no trend of long-term Treasury supply shortage, most likely no recession expectation either.
The reason for saying "most likely" is that the US Treasury itself is growing too fast in scale and carries some risk, so the motivation to buy Treasuries for hedging may be decreasing. However, another asset with hedging properties — gold — is also on a downward trend now. So, it is said that there is most likely no recession expectation.
tvbee
#30年期美债收益率创19年新高
The risk of U.S. Treasury bonds is now visible to the naked eye, so will the Federal Reserve really raise interest rates in September?
Raising interest rates will push up U.S. Treasury yields and increase the financing costs of the U.S. Treasury Department.
┈➤ The "ambiguous" relationship between the Federal Reserve and the federal government
Although the Federal Reserve is independent, the relationship between the Fed and the Treasury is also "ambiguous."
╰✦ The Federal Reserve remits net profits to the federal government
On one hand, although the Fed is self-sustaining, it must remit its remaining net profits to the U.S. government.
The U.S. government does not provide any appropriations to the Fed. Moreover, after covering costs, paying dividends to member commercial banks, offsetting previous losses, and retaining earnings within legal limits, the Fed remits the vast majority of its net profits to the U.S. Treasury.
╰✦ Most of the Federal Reserve's income comes from U.S. Treasuries
On the other hand, most of the Fed's income normally comes from holding U.S. Treasuries issued by the Treasury Department.
The Fed injects dollar liquidity by purchasing Treasuries and mortgage-backed securities (MBS).
Buying or reducing Treasuries is one of the main forms of QE/QT. Therefore, the Fed holds a large amount of Treasuries long-term, and the interest from these Treasuries is a major source of the Fed's income.
Additionally, during QE, the Fed buys MBS and continues to hold them for some time afterward, which also generates interest income. But in most years, interest income from Treasuries is higher. As the bank for commercial banks, the Fed also earns income from discounting and lending services, but unless in crisis periods, this income is usually small.
So overall, U.S. Treasuries are one of the main sources of the Fed's income.
So, will the Fed raise rates without regard for Treasuries and the U.S. government?
┈➤ Does inflation necessarily require a rate hike?
I have analyzed countless times that inflation caused by oil prices cannot be fundamentally cured by raising interest rates.
Raising rates mainly serves to suppress wage growth expectations to curb the "wage-inflation" spiral.
So, the expectation of a rate hike may also have this effect.
Whether rates will be raised in September depends on data from the next two months, July and August. If CPI does not worsen, the Fed might still hold steady.
┈➤ Final thoughts
On one hand, I do not believe a September rate hike is a done deal. Given the relationship between the Fed and the federal government, would the Fed really raise rates without any concern for the U.S. Treasury?
On the other hand, the expectation of a September rate hike is already priced in; the rise in Treasury yields essentially means the market is already anticipating rate hikes.
I believe balance sheet reduction might be more appropriate than rate hikes.
Because balance sheet reduction also brings tightening expectations, helping to suppress wage growth expectations and curb the "wage-inflation" spiral. Observing the month-over-month growth rate of U.S. wages, there is no trend of accelerating wage growth.
The difference between balance sheet reduction and rate hikes is that each rate hike is a one-time tightening, while balance sheet reduction is gradual tightening.
During balance sheet reduction, Treasuries held by the Fed mature and are not fully repurchased, so the reduction in demand for Treasuries is gradual, causing relatively less impact.
Wolsh's proposal is to reduce the balance sheet first, then cut rates.
Of course, this is my personal view. The Fed's decision will likely depend on observing U.S.-Iran relations and inflation trends in July and August.
#30年期美债收益率创19年新高
The risk of U.S. Treasury bonds is now visible to the naked eye, so will the Federal Reserve really raise interest rates in September?
Raising interest rates will push up U.S. Treasury yields and increase the financing costs of the U.S. Treasury Department.
┈➤ The "ambiguous" relationship between the Federal Reserve and the federal government
Although the Federal Reserve is independent, the relationship between the Fed and the Treasury is also "ambiguous."
╰✦ The Federal Reserve remits net profits to the federal government
On one hand, although the Fed is self-sustaining, it must remit its remaining net profits to the U.S. government.
The U.S. government does not provide any appropriations to the Fed. Moreover, after covering costs, paying dividends to member commercial banks, offsetting previous losses, and retaining earnings within legal limits, the Fed remits the vast majority of its net profits to the U.S. Treasury.
╰✦ Most of the Federal Reserve's income comes from U.S. Treasuries
On the other hand, most of the Fed's income normally comes from holding U.S. Treasuries issued by the Treasury Department.
The Fed injects dollar liquidity by purchasing Treasuries and mortgage-backed securities (MBS).
Buying or reducing Treasuries is one of the main forms of QE/QT. Therefore, the Fed holds a large amount of Treasuries long-term, and the interest from these Treasuries is a major source of the Fed's income.
Additionally, during QE, the Fed buys MBS and continues to hold them for some time afterward, which also generates interest income. But in most years, interest income from Treasuries is higher. As the bank for commercial banks, the Fed also earns income from discounting and lending services, but unless in crisis periods, this income is usually small.
So overall, U.S. Treasuries are one of the main sources of the Fed's income.
So, will the Fed raise rates without regard for Treasuries and the U.S. government?
┈➤ Does inflation necessarily require a rate hike?
I have analyzed countless times that inflation caused by oil prices cannot be fundamentally cured by raising interest rates.
Raising rates mainly serves to suppress wage growth expectations to curb the "wage-inflation" spiral.
So, the expectation of a rate hike may also have this effect.
Whether rates will be raised in September depends on data from the next two months, July and August. If CPI does not worsen, the Fed might still hold steady.
┈➤ Final thoughts
On one hand, I do not believe a September rate hike is a done deal. Given the relationship between the Fed and the federal government, would the Fed really raise rates without any concern for the U.S. Treasury?
On the other hand, the expectation of a September rate hike is already priced in; the rise in Treasury yields essentially means the market is already anticipating rate hikes.
I believe balance sheet reduction might be more appropriate than rate hikes.
Because balance sheet reduction also brings tightening expectations, helping to suppress wage growth expectations and curb the "wage-inflation" spiral. Observing the month-over-month growth rate of U.S. wages, there is no trend of accelerating wage growth.
The difference between balance sheet reduction and rate hikes is that each rate hike is a one-time tightening, while balance sheet reduction is gradual tightening.
During balance sheet reduction, Treasuries held by the Fed mature and are not fully repurchased, so the reduction in demand for Treasuries is gradual, causing relatively less impact.
Wolsh's proposal is to reduce the balance sheet first, then cut rates.
Of course, this is my personal view. The Fed's decision will likely depend on observing U.S.-Iran relations and inflation trends in July and August.
This seems like big news! Has Trump started to change his strategy?
Trump declared reconciliation with Hamas today!
Why is this big news? Because Hamas is one of the key players in Iran's proxy network.
┈➤ Iran's "Proxy Network"
Iran has long supported several forces in the Middle East, forming its proxy militias.
These include Lebanon's Hezbollah, Yemen's Houthi movement, Iraqi Shia militias and political groups, Palestinian Islamic Jihad, Hamas, and others, all generally part of the anti-American camp.
Most are explicitly anti-American, while others oppose Israel and indirectly oppose the U.S.
Most of Iran's proxy groups are not orthodox ruling parties; Hezbollah in Lebanon is one of the few with legitimate political party status (participating in governance), while others resemble warlords with religious and ideological characteristics.
Setting aside the specific politics of these countries and regions, Iran's support for proxy groups has, to some extent, exacerbated divisions in the Middle East.
These proxy networks' military and religious influence in the Middle East have become important assets for Iran.
For example, the Yemeni Houthi movement holds significant military power at the southern exit of the Red Sea Strait, echoing the Strait of Hormuz in the northeast, controlling eastbound shipping in the Middle East.
Without Houthi interference, Saudi oil could be transported westward through the southern exit of the Red Sea Strait to Asia.
┈➤ The Breach in the "Axis of Resistance"
The "Axis of Resistance" refers to the alliance in the Middle East resisting U.S. hegemony and Israeli expansion. It is not completely identical but highly overlaps with Iran's "proxy network."
Hamas, as an important member of the "Axis of Resistance," reconciling with the U.S. creates a breach in this "Axis of Resistance."
Trump seems to be changing his strategy: since direct military action against Iran is too costly, he is starting with Iran's allies.
Once Iran's "proxy network" begins to loosen, Iran's power in the Middle East will gradually weaken.
Of course, if Trump is truly pursuing this plan, the strategy is extremely challenging. Groups like the Houthis and Hezbollah are not only anti-American and anti-Israel due to interests but also because of religious conflicts with the U.S. and Israel, making reconciliation very difficult.
┈➤ In Conclusion
Like #trump
First, if Israel accepts withdrawal, Gaza may enter peace. This is good news for the safety and healthy lives of the Palestinian people.
Second, this move can enhance Trump's international prestige, benefiting his midterm elections, which is good news for him personally.
Third, Hamas's core military strength is clearly declining, and Iran's proxy network is weakening. This helps influence market expectations and suppress oil price increases, which is also good news for the market.
If Trump continues this proxy weakening strategy, we wish him early success and oil prices to recover soon!
The reason for tonight's rebound in the US stock market has been found! Is it a rebound or a reversal?
#美联储三票主张加息，今晚PCE成新看点
┈➤ Data
◆ Core PCE Data
Annual rate meets expectations (3.3%), monthly rate (0.1%) below expectations (0.2%) and below previous value (0.3%).
Q2 annualized quarterly rate (3.4%) below expectations (3.5%) and below previous value (4.4%).
◆ GDP Data
Q2 annualized quarterly GDP rate (1.5%) significantly below expectations (2.1%) and previous value (2.1%).
◆ Personal Spending Data
Monthly rate meets expectations (0.3%), below previous value (0.9%).
Q2 real quarterly rate (3.2%) exceeds expectations (2.3%) and previous value (0.5%).
┈➤ Interpretation
First, PCE data is more macro than CPI data and is more closely watched by the Federal Reserve. The PCE data is overall slightly weaker than expected and shows a downward trend compared to last month, which helps reduce the Fed's motivation to raise interest rates.
Second, GDP data is below expectations and Q1, indicating economic growth is slowing, which also reduces the justification for Fed rate hikes.
Third, Q2 real personal spending quarterly data, which excludes inflation factors, shows that personal consumption expenditure in Q2 remains relatively strong. However, the monthly personal spending rate shows a noticeable downward trend.
Overall, tonight's data tends to weaken the expectation of Fed rate hikes. The CME's expectation for a September rate hike has dropped to 61.4%, down from 68% last night.
Of course, this is not enough to change the expectation of a September rate hike, as the Fed focuses on data over several months rather than a single month.
Moreover, the quarterly data is preliminary and will be revised later, and with renewed tensions between the US and Iran in July causing oil prices to rise again, the CPI data for July-August may not be optimistic.
Therefore, Brother Feng still leans towards a rebound rather than a reversal.
tvbee
If there is a past life, Trump must have been the Black Swan reincarnated from that life!
Originally, I was optimistic about the US stock market and crypto during the August monetary policy window.
But Trump also took notice of this window, and the US-Iran conflict started again.
Militarily, on July 28, Iran launched a missile test attack on US troops stationed in the Middle East.
Non-militarily, in July, the US reimposed sanctions on Iran's oil sales, including economic sanctions and sanctions on Iranian shipping.
Iran launched the attack the day before the Federal Reserve's FOMC meeting, raising expectations of US-Iran conflict, rising oil prices, and increasing CPI. It is speculated that Iran deliberately timed this to give the Fed a reason to hawkishly tighten or even raise interest rates—in simple terms, to put eye drops on Trump. Of course, this is just personal speculation.
Fortunately, the market has become somewhat desensitized to the US-Iran conflict. Around July 24, OPEC crude oil peaked near 100, and WTI crude oil peaked near 73. Today, OPEC crude oil peaked near 90, and WTI crude oil peaked near 85.
Storage is rebounding, Merck $SKHY back to $132. Micron $MU back to $778, $SNDK back to $1095.
If there is a past life, Trump must have been the Black Swan reincarnated from that life!
Originally, I was optimistic about the US stock market and crypto during the August monetary policy window.
But Trump also took notice of this window, and the US-Iran conflict started again.
Militarily, on July 28, Iran launched a missile test attack on US troops stationed in the Middle East.
Non-militarily, in July, the US reimposed sanctions on Iran's oil sales, including economic sanctions and sanctions on Iranian shipping.
Iran launched the attack the day before the Federal Reserve's FOMC meeting, raising expectations of US-Iran conflict, rising oil prices, and increasing CPI. It is speculated that Iran deliberately timed this to give the Fed a reason to hawkishly tighten or even raise interest rates—in simple terms, to put eye drops on Trump. Of course, this is just personal speculation.
Fortunately, the market has become somewhat desensitized to the US-Iran conflict. Around July 24, OPEC crude oil peaked near 100, and WTI crude oil peaked near 73. Today, OPEC crude oil peaked near 90, and WTI crude oil peaked near 85.
Storage is rebounding, Merck $SKHY back to $132. Micron $MU back to $778, $SNDK back to $1095.
tvbee
No rate hike in July, stance neutral leaning hawkish
The Federal Reserve is very likely, as the market expects, not to raise rates in July.
Except for 3 firmly hawkish officials advocating a rate hike in July, the rest voted to keep rates unchanged.
Among them are 2 hawkish-leaning officials: one is Fed Chair Powell, whose recent remarks have been relatively flexible, advocating policy adjustments based on economic conditions.
The other is Fed Board member Lisa D. Cook, who was previously dovish but turned hawkish; Trump had previously attempted to fire her. Possibly under such pressure, she stated in mid-July that she prefers to observe for a while longer.
Overall, the signals from this FOMC meeting are neither dovish nor very hawkish. The details will be clearer after next month's July meeting minutes.
Among the 12 Fed officials voting, 8 hold permanent seats and all supported keeping rates unchanged in July.
Their statements were relatively cautious.
The 3 firmly hawkish officials hold 2026 voting seats and will lose voting rights next year.
Starting next month, I will also summarize officials with voting rights in 2027.
Expectations for a rate hike in September are very high. Although August is a monetary policy gap period, in the latter part or second half of the month, the market may start to price in the negative impact of a September rate hike early.
In early August, focus will be on the Senate's full vote on the crypto clarity bill.
No rate hike in July, stance neutral leaning hawkish
The Federal Reserve is very likely, as the market expects, not to raise rates in July.
Except for 3 firmly hawkish officials advocating a rate hike in July, the rest voted to keep rates unchanged.
Among them are 2 hawkish-leaning officials: one is Fed Chair Powell, whose recent remarks have been relatively flexible, advocating policy adjustments based on economic conditions.
The other is Fed Board member Lisa D. Cook, who was previously dovish but turned hawkish; Trump had previously attempted to fire her. Possibly under such pressure, she stated in mid-July that she prefers to observe for a while longer.
Overall, the signals from this FOMC meeting are neither dovish nor very hawkish. The details will be clearer after next month's July meeting minutes.
Among the 12 Fed officials voting, 8 hold permanent seats and all supported keeping rates unchanged in July.
Their statements were relatively cautious.
The 3 firmly hawkish officials hold 2026 voting seats and will lose voting rights next year.
Starting next month, I will also summarize officials with voting rights in 2027.
Expectations for a rate hike in September are very high. Although August is a monetary policy gap period, in the latter part or second half of the month, the market may start to price in the negative impact of a September rate hike early.
In early August, focus will be on the Senate's full vote on the crypto clarity bill.
tvbee
High probability: No rate hike tonight, but a rate hike signal will be released
#美联储即将公布利率决议
┈➤ High probability of no rate hike tonight
╰✦ Market expectation is a high probability of keeping rates unchanged
CME interest rate futures products show that the market's expectation for a July rate hike has a 68.5% probability of rates remaining unchanged. See Figure 1.
The recent rise in rate hike expectations is due to tense US-Iran relations and rising oil prices. Polymarket's expectation for no rate hike in July has dropped from 96% to 75% in the past two days, but it still remains around 75%. See Figure 2.
These two products, the former being interest rate futures and the latter a prediction market, are both "voted" on by TradeFi traders using real money.
Especially CME interest rate futures, since mid-2023, the Fed's dot plot showed further hikes in the second half of the year, but CME interest rate futures indicated no more hikes, and indeed there were no hikes in the second half.
╰✦ Layoff trend
Recently, companies like Visa, Uber, ServiceNow, Disney, and Patreon have clearly announced upcoming layoffs, for example, Visa announced 2,600 layoffs, Uber announced 10% layoffs... (Information confirmed by Grok+GPT)
If large companies are like this, what about small companies?
The current corporate layoff trend is influenced by AI replacing human labor combined with economic trends. Although rate cuts cannot solve the AI replacement issue, rate hikes still need to be carefully considered.
Therefore, the market's expectation for a rate hike in September is relatively high, including CME interest rate futures and Polymarket predictions.
┈➤ Releasing rate hike expectations
The Fed will most likely release rate hike expectations.
Brother Feng has analyzed this issue more than once: rate hikes cannot solve inflation caused by rising oil prices.
However, inflation caused by rising oil prices triggers expectations and demand for wage increases. Once wages rise, it further pushes up corporate costs, which then causes prices of goods and services to rise.
The role of rate hike expectations is to suppress wage increase expectations in this "wage-inflation" spiral, thereby curbing the "wage-inflation" spiral.
┈➤ Final notes on layoff trends: on one hand, they reduce the sufficiency for Fed rate hikes. On the other hand, with layoffs ongoing, Americans' demand and desire for wage increases will also decline, reducing the "wage-inflation" spiral trend, which in turn reduces the necessity for Fed rate hikes.
This is quite an interesting logic.
Combined with market expectations, there is a high probability of no rate hike tonight.
Since the FOMC meetings occur roughly every one and a half months, there is no meeting in August, making it a monetary policy gap month. The latter half of the month may start to price in a September rate hike. The first half of the month may not be very quiet; crypto mainly watches the Senate full vote on that clear bill.
As for September, if inflation issues are severe in September or Q4, the Fed may hike rates once to better exert this suppressive effect.
But a single rate hike is not a continuous rate hike cycle, so market panic and liquidity expectations may be relatively limited.
Of course, the key concern is if the September dot plot releases a more hawkish signal.
High probability: No rate hike tonight, but a rate hike signal will be released
#美联储即将公布利率决议
┈➤ High probability of no rate hike tonight
╰✦ Market expectation is a high probability of keeping rates unchanged
CME interest rate futures products show that the market's expectation for a July rate hike has a 68.5% probability of rates remaining unchanged. See Figure 1.
The recent rise in rate hike expectations is due to tense US-Iran relations and rising oil prices. Polymarket's expectation for no rate hike in July has dropped from 96% to 75% in the past two days, but it still remains around 75%. See Figure 2.
These two products, the former being interest rate futures and the latter a prediction market, are both "voted" on by TradeFi traders using real money.
Especially CME interest rate futures, since mid-2023, the Fed's dot plot showed further hikes in the second half of the year, but CME interest rate futures indicated no more hikes, and indeed there were no hikes in the second half.
╰✦ Layoff trend
Recently, companies like Visa, Uber, ServiceNow, Disney, and Patreon have clearly announced upcoming layoffs, for example, Visa announced 2,600 layoffs, Uber announced 10% layoffs... (Information confirmed by Grok+GPT)
If large companies are like this, what about small companies?
The current corporate layoff trend is influenced by AI replacing human labor combined with economic trends. Although rate cuts cannot solve the AI replacement issue, rate hikes still need to be carefully considered.
Therefore, the market's expectation for a rate hike in September is relatively high, including CME interest rate futures and Polymarket predictions.
┈➤ Releasing rate hike expectations
The Fed will most likely release rate hike expectations.
Brother Feng has analyzed this issue more than once: rate hikes cannot solve inflation caused by rising oil prices.
However, inflation caused by rising oil prices triggers expectations and demand for wage increases. Once wages rise, it further pushes up corporate costs, which then causes prices of goods and services to rise.
The role of rate hike expectations is to suppress wage increase expectations in this "wage-inflation" spiral, thereby curbing the "wage-inflation" spiral.
┈➤ Final notes on layoff trends: on one hand, they reduce the sufficiency for Fed rate hikes. On the other hand, with layoffs ongoing, Americans' demand and desire for wage increases will also decline, reducing the "wage-inflation" spiral trend, which in turn reduces the necessity for Fed rate hikes.
This is quite an interesting logic.
Combined with market expectations, there is a high probability of no rate hike tonight.
Since the FOMC meetings occur roughly every one and a half months, there is no meeting in August, making it a monetary policy gap month. The latter half of the month may start to price in a September rate hike. The first half of the month may not be very quiet; crypto mainly watches the Senate full vote on that clear bill.
As for September, if inflation issues are severe in September or Q4, the Fed may hike rates once to better exert this suppressive effect.
But a single rate hike is not a continuous rate hike cycle, so market panic and liquidity expectations may be relatively limited.
Of course, the key concern is if the September dot plot releases a more hawkish signal.
Is SK Hynix's financial report below expectations? Three key points to watch in SK Hynix's earnings report!
#海力士业绩创纪录但不及预期，存储股剧烈波动
┈➤ SK Hynix's operating revenue indeed fell short of the average expectation
According to Yahoo platform, forecasts from 27 analysts from major global investment banks:
◆ The average expected operating revenue for SK Hynix in 26Q2 is ₩84.12 trillion,
◆ The low estimate is ₩76.6 trillion,
◆ The high estimate is ₩91.74 trillion.
The actual reported figure is ₩79.3187 trillion, only 3.55% above the low estimate, 5.17% below the average expectation, not to mention the high estimate.
This is likely the reason for today's sharp drop in #海力士.
┈➤ SK Hynix's EPS exceeded expectations
╰✦ EPS far exceeded expectations
Also from Yahoo Finance:
◆ SK Hynix's 26Q2 EPS average expectation: ₩70,975.38
◆ Low estimate: ₩61,998.81
◆ High estimate: ₩76,447
The actual EPS reported is ₩131,478, exceeding the highest expectation by 79.99%.
Of course, with operating revenue below average expectation but EPS far exceeding expectations, this discrepancy likely comes from non-operating income. SK Hynix probably had some income growth here, possibly involving some financial techniques, but it should not be excessively inflated.
╰✦ Daily candlestick close
The EPS far exceeding expectations might explain SK Hynix's daily candlestick close. SK Hynix opened today at ₩1,567,000, hit a low of ₩1,246,000, and closed at ₩1,401,000.
The lower shadow is close in length to the body; this pattern is not necessarily a reversal signal but could indicate a potential rebound.
┈➤ SK Hynix's operating profit margin leads but rises moderately
╰✦ Operating profit margin leads
Some believe that SK Hynix's long-term HBM contract locked in capacity, so it missed out on the DRAM price increase benefits.
However, although the long-term contract locked capacity, it did not lock prices, so it does not actually affect SK Hynix's revenue growth in the HBVM field.
Regarding the DRAM price increase benefits, Samsung has a higher market share than SK Hynix in the DRAM sector. But Samsung's operating profit margin in 26Q2 was only about 52%, while SK Hynix's operating profit margin was 76%, far higher than Samsung's.
╰✦ Operating profit margin rises moderately
However, attention should be paid to SK Hynix's moderate increase in operating profit margin. A high operating profit margin indicates a greater advantage of cost relative to price. But a small increase in operating profit margin suggests this advantage may be weakening.
Theoretically, leading companies innovate technologically, possibly selling at higher prices or producing at more advantageous costs, thus gaining more operating profit margin.
However, as peer companies imitate technology or demand growth slows after a surge, operating profit margin may level off.
╰✦ Final notes
First, SK Hynix's Q2 revenue grew 51% quarter-over-quarter, operating profit grew 615%, and net profit grew 133%, still in a healthy growth trend.
Second, SK Hynix's operating revenue exceeded the lowest expectation but did not reach the average expectation level.
Third, SK Hynix's EPS data far exceeded expectations; it is speculated there might be some financial techniques involved, but EPS is clearly above expectations.
Fourth, SK Hynix's operating profit margin increased by 4 percentage points compared to the previous quarter, with growth slowing. This indicates HBM technology or demand has entered a moderate growth phase.
Fifth, SK Hynix's operating profit margin remains higher than Nvidia and Samsung, indicating that the HBM and storage industry benefits still exist but have shifted from an explosive phase to moderate growth.
In fact, operating revenue below expectations but EPS exceeding expectations means market declines or rises are sometimes not entirely rational but selectively interpreted.
Fortunately, SK Hynix's daily candlestick has closed, possibly starting a rebound wave. #skhy $XSKHY
Currently, SK Hynix has only released a summary and core information of the financial report; the full report has not yet been published. Later, Brother Feng will try to dig out more useful information.
