Santander | It is one of the first headlines from last night’s FOMC minutes. Fed staff members go from assigning a near 50% probability, to now forecasting a mild recession. With the Fed also nearing the end of the cycle, it is no surprise that some dissenting voices are beginning to appear, opening the door to new bouts of volatility that have not favoured the credit market (MOVE/Main correlation of…
Intermoney | The same could be said of the update of the macro picture forecasts. Economic projections are not necessarily a roadmap for policy and are subject to change. In fact, they have been changing from quarter to quarter. The projections point to inflation at 3.6% this year, one tenth of a percentage point higher than forecast in December. In 2024 it will moderate (2.6%), but it will not be…
Banca March | The collapse of SVB and Signature Bank has prompted the Fed to consider extending regulatory restrictions that so far only apply to large Wall Street banks. This would include stricter capital and liquidity requirements, as well as annual stress tests. Specifically, according to Reuters, the institution is currently reviewing the capital and liquidity requirements it imposes on banks, especially those with assets of between $100 and $250…
J.P. Marín-Arrese | The Fed’s message was tough enough, warning that the hiking cycle will go on unabated, even if it loses some steam, until inflation comes fully under control. The markets expected the quarter per cent rise in the Federal funds would prompt Powell to offset such a slowdown with a hawkish performance. Yet, in the press conference, he provided enough dovish hints to send the stocks bouncing back…
J.P. Marín-Arrese | Last Friday, Wall Street jumped on employment and services data. Jobs openings, while better than expected, signalled a downward path. The service sector contracted for the first time till 2020. The ensuing bullish reaction shows the markets bet the Fed might undertake a U-turn earlier than pointed out in the last FOMC minutes. Investors seem to outwit the Fed, disregarding its determination to keep rates tight enough…
Bankinter| From the minutes of the Fed’s meeting of December 13th and 14th: There was no explicit mention of the possibility of an interest rate cut in 2023; rather they argue that they believe it is appropriate to keep interest rates at elevated levels for an extended period of time, although they retain the flexibility to react as appropriate to the data at any given time. The Committee expresses concern…
Juan Pedro Marín-Arrese | The Fed is running out of munition after raising its rates substantially. The narrowing margin forces it to slow down monetary tightening. Keeping unabated its previous speed would wreak havoc on the economy. Yet, Jay Powell countered any hope of further softening by delivering a relentless hawkish message at the latest press meeting that plunged stocks into utter disarray. Powell made it crystal clear at Jackon…
J.P. Marín-Arrese | While markets mildly reacted to the widely discounted rate hike and the prospect of protracted high-interest levels, the stern message delivered by Jerome Powell unsettled them. Stocks tumbled as he emphasised the Fed’s commitment to tighten its policy as long as inflation remains unabated, flying high above its 2% medium-term target. In short, he sounded ready to do ‘whatever it takes’ to curb the current price spiral….
Intermoney | The increased scarcity of paper is prompting money funds to dump their excess liquidity in the reverse repo window, for which the Fed is offering 0.8%. In fact, demand for Fed reverse repurchase agreements reached new highs after 94 participants placed a total of $2,045 tr. As we have explained, the increased interest in reverse repo trading, which is usually an investment of last resort, has been exacerbated…
Fernando González Urbaneja | The relationship between bond and share prices is well known; when bond yields fall, shares are likely to rise. And the opposite is true, the lower the bond yield, the higher the share price. This is the general thesis that admits exceptions and variants. Bond prices are closely linked to the interest rate determined by central banks as well as the risk premium applied to each…