Aaron Kohli - BMO Capital Markets


Last quote by Aaron Kohli

I think June is still on the table unless the consumer or inflation blows up. They gave themselves an out. That's just prudent.feedback
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NEW May 24 2017
We can learn a lot about a person if we know what types of things he or she talks about or comments on the most frequently. There are numerous topics with which Aaron Kohli is associated, including Fed, November, and market. Most recently, Aaron Kohli has been quoted saying: “What would keep them from going [in June]? A small inflation print, but that's a small probability They're locked and loaded and ready to go. If you start to see housing markets weaken, how should that bias your view about how inflation should look in a month? Shelter costs have been holding up core [inflation]. You've seen weakness in apparel and used cars. It gums up the works. It's another distraction and it's another reminder of things that are not getting done.” in the article Health care bill, housing will vie with Fed for market attention.
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Aaron Kohli quotes

It's been about reading the tea leaves of the health-care failure, and it's been slowly taking back some of the inflation and growth expectations. It's been the crescendo with these [geopolitical] headlines, or tape bombs.feedback

If you're betting on higher yields, a lot of things have to go well. But if you're betting on lower yields, only one of those things has to show up.feedback

It does suggest the market is focused on some of the negative things.feedback

It's the very last, low hurdle to cross. If it's even barely good, it will be good enough.feedback

There is setting up for what people expect might be at least a focus on things like fiscal stimulus and infrastructure spending of some kind, that might actually boost risk and cause yields to rise.feedback

From a technical formation, it looks like if you break that, you've accelerated the rate of yield descent. There's some sense out there you could have a runaway rally. Markets are short, and if you start to see a yield move, it could pick up steam.feedback

The longer Congress and the Trump administration dither on fiscal stimulus, the less likely in everyone's estimation that it will come to pass.feedback

She certainly gave the market a big push. Just looking at March probabilities, they went form an 18 percent chance (of a rate hike) to 25. The market went from pricing slightly less than two hikes to slightly more than two hikes in 2017.feedback

There's a short base that will get even bolder if rates get to that level. I think it's very possible you get that kind of spike up. What I would suggest is as soon as that happens you might go the other way.feedback

If there's any sort of hitch in delivering, if there's any sort of political issue, or if any of the other … extreme political projections that we've been talking about, either a trade war or any other sort of conflict, [start] to arise, I think you could see yields drop very quickly with very little stimulus.feedback

I think investors have broadly bought into that belief that rates are going up, and as a result, they've been willing to bet against the market quite easily, and that gives you the potential for a very strong rally if the right spark emerges.feedback

It's a little bit more hawkish than expected. They moved up the dots a little bit more aggressively in the near term.feedback

They didn't move any of the longer-term stuff so maybe that confidence isn't supremely high but certainly it's improving for them.feedback

We do believe the market is getting a little ahead of itself. The flattening of the yield curve seems to suggest we're prepping for a hawkish Fed, but it's difficult to assume that a Fed that's been so historically cautious and has taken such a wait-and-see approach … is going to suddenly turn very aggressively hawkish when the president-elect hasn't even been sworn in yet.feedback

I think any time you violates these bounds usually you get a pullback in yield so you might retrace a bit. We've gotten here so quickly. We got from (10-year yield) 1.70 to 2.50 in very short order. It's been a big shock to the market. I think the immediate knee jerk reaction will be for shorts to take profits.feedback

In the past they would have had to go out and buy to match the benchmark. It's dropped off … in the past it made sense to do that because the prevailing direction of rates was lower.feedback

You want yields to be higher because there's expectations for growth ... but you don't want them selling off, or you don't want them up 60 basis points because somebody got squeezed. You want them up on future growth.feedback

There's a new psychology in the market. We've spent so long looking to buy rates, we've switched around.feedback

The reality is I'm not sure that tomorrow's (jobs report) can provide enough of a boost to get there. We always tend to focus on the headlines. What's more important this time around is the hourly earnings. You could be adding stimulus into a market where labor conditions have already tightened and wages are moving up.feedback

We're obviously focused on the ECB as more of an event risk.feedback

We're starting to see some momentum as rates turn toward a rally and really watching the front end and what it will price for the Fed in December. There's some technical patterns that suggest the two-year might be rallying, but right now the market is approaching a bigger decision point. Particularly as we get to November, the market will have to be setting up for a rate hike in December.feedback

We had a big jump in yield. Then we came right back to where we started.feedback

The market right now is battling with the timing and how likely it is that they get a hike off this year.feedback

Though extremely unlikely to happen, it occurs to us that the best way for the Fed to guide the markets in this case might be to simply say less and let the market adjust to incoming data rather than trying to manage hike probabilities higher through jawboning.feedback

The market is looking at different things, we've got the headline, which is a little bit softer, and the average hourly earnings that are much better.feedback

The tension is fairly evident. You've got the Fed that's trying very hard to keep some of the hikes this year on the table, and you've got a market that is pricing in just one hike. There are quite a few investors who believe the Fed may be cutting soon. That dichotomy certainly has widened quite a bit.feedback

The Fed did seem to acquiesce a little in the statement. They were certainly on the dovish side of what they could have said. But definitely the market's view on where the data are headed and the Fed's view really are diametrically opposed.feedback

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