Policy
The Fed lifted rates 25 bps yesterday while also signaling that the tightening cycle is near its peak. We discuss the short-run and long-run implications for Treasury yields.
US financial instability reinforces our bearish investment outlook by weighing on economic growth and corporate earnings while also increasing US policy uncertainty and geopolitical risk.
Have global equity markets reached a riot point? Is the Fed going on hold a sufficient condition for stocks to stage a cyclical rally? If not, what would be needed to produce such a rally? Does the Fed’s recent balance sheet expansion foreshadow a rise in the US money supply? This report provides answers to all these questions.
Systematically important central banks continue to compound policy errors, which will feed higher headline inflation. Hiking interest rates to induce labor-market slack – i.e., higher unemployment – to bring down core inflation will reduce demand for scarce commodities as incomes fall. It also will increase the cost of conventional and renewable capex and slow the final-investment-decision (FID) process. Net, supply will tighten as demand is squeezed. This will resolve itself in higher volatility and prices. Separately, we were stopped out of our XOP and XME ETFs spanning energy and mining equities, respectively, with a loss of 11.9% and a gain of 4.4%. We will be re-establishing these exposures at tonight’s close.
This week’s report looks at the banking crisis within the context of shrinking dollar liquidity and implication for FX markets.
Some quick takes from today’s FOMC meeting.
The Bank of Japan is about to get new leadership when Kazuo Ueda takes over as governor in April. Will there be a new monetary policy to go along with the new governor? We attempt to answer that question, and what that means for global bond markets and the yen, in this Special Report.
The banking crisis has hit European shores and engulfed CS; is this all bad news for Europe or have the odds of a policy mistake declined?
Depending on market volatility during the next few trading days, the Fed will either lift rates by 25 bps next week or pause its tightening cycle. Either way, the Fed’s hiking cycle is close to its peak but rate cuts won’t be coming anytime soon.