Passa ai contenuti principali

Fed's Rate Hikes Storm Back Into The Spotlight As Scorching Economy Overheats

US money markets are starting to show signs of anxiety about the stimulus-squared flood into the US economy, bringing forward expectations of the timing of the start of The Fed's next rate-hike cycle.

Fed funds futures markets now imply a 70% chance of a 25bps Fed rate hike by the end of 2022 (compared to 50% last week)...

Source: Bloomberg

And March 2023 is almost a certainty...

Source: Bloomberg

BofA highlights the central planners' dilemma as short-run gain opens the door for long-run potential pain.

This is illustrated by the rapid closing and then overshooting of the output gap.

Normally, BofA notes that this happens many years into the recovery and is followed by a recession as the Fed puts on the brakes. This time around the Fed has more breathing room as inflation and inflation expectations are low and they are willing to allow a modest overshoot. This gives them time to gradually hit the brakes.

But, the market is painting a story of optimism: strong growth and rising, but not troublesome, inflation.

BofA sees upside risk to our 6.0% forecast for GDP growth this year, owing to stronger 1Q GDP tracking and prospects for a larger stimulus in March.

Consensus growth expectations are soaring...

There is a delicate balance: strong growth could prompt a faster rise in rates, driving up borrowing costs and weighing on risky assets, limiting economic growth upside.

And further out in time, that balance is quickly pivoting against risk assets as the pace of rate-hikes accelerates further...

Source: Bloomberg

As Deutsche's Jim Reid notes, we basically saw nearly one incremental 25bps hike priced into the Dec 24 contract over the last week.

Commenti

Posta un commento

Post popolari in questo blog

Fwd: The Looming Bank Collapse The U.S. financial system could be on the cusp of calamity. This time, we might not be able to save it.

After months  of living with the coronavirus pandemic, American citizens are well aware of the toll it has taken on the economy: broken supply chains, record unemployment, failing small businesses. All of these factors are serious and could mire the United States in a deep, prolonged recession. But there's another threat to the economy, too. It lurks on the balance sheets of the big banks, and it could be cataclysmic. Imagine if, in addition to all the uncertainty surrounding the pandemic, you woke up one morning to find that the financial sector had collapsed. You may think that such a crisis is unlikely, with memories of the 2008 crash still so fresh. But banks learned few lessons from that calamity, and new laws intended to keep them from taking on too much risk have failed to do so. As a result, we could be on the precipice of another crash, one different from 2008 less in kind than in degree. This one could be worse. John Lawrence: Inside the 2008 financial crash The financial...
Posta un commento
Continua a leggere

3 Reasons Why Gold Will Outperform Equities And Bonds

3 Reasons Why Gold Will Outperform Equities And Bonds https://www.forbes.com/ 3 Reasons Why Gold Will Outperform Equities And Bonds For centuries, gold has played a major role in human history and has become interwoven into the financial fabric of society. Beyond its investment following, gold has become synonymous with wealth. Historically, gold's early use cases revolved around money – a form of "medium of exchange". After the second world war however, several countries and their respective currencies, started to shift away from the gold standard and migrated towards a fiat currency system. Today, gold remains largely a "Store of Value", and due to its unique properties and large number of use cases, it has managed to distance itself from other asset classes in terms of correlation, demand / supply drivers, and investment purpose. Gold's idiosyncrasies function as a double-edged sword, as it is challenging to predict ...
Posta un commento
Continua a leggere

China Market extends fall on talks of less stimulus

Headline indices of the Mainland  China  equity market closed down for second straight day on Tuesday, 23 April 2019, as profit booking selloff continued after a flurry of comments from policymakers signaled they're less comfortable about adding stimulus. At closing bell, the benchmark Shanghai Composite Index declined 0.51%, or 16.45 points, to 3,198.59 The Shenzhen Composite Index, which tracks stocks on China's second exchange, fell 1.32%, or 23.05 points, to 1,728.86. The blue-chip CSI300 index shed 0.16%, or 6.60 points, to 4,019.01.  Top-ranking policymaking bodies including the Politburo, the State Council, the central  bank  and the  Central Financial and Economic Affairs Commission  have all held meetings in the last two weeks.  China  should fine-tune monetary policy in a pre-emptive way based on economic growth and price changes, according to a top-level meeting reports chaired by  President  Xi Jinping.  Monetary po...
Posta un commento
Continua a leggere