Tomorrow we will hear from the Fed. It’s very unlikely the world’s most influential central bank will raise rates this month. However, it’s my view Jay Powell is not about to drop any dovish hints. Remember: just because they may be closer to the end of rate hikes – that doesn’t mean they are about to cut. Rate cuts are dovish. However, rates staying higher for longer is hawkish. And as inflation comes down, this means real rates are rising (with the Fed on hold). From mine, we hear a hawkish Fed tomorrow. And the market has not priced that in.
For Now… Bad News is Good News
August has proven to be a bumpy month for equities. And if the Trader’s Almanac is any guide – it’s not surprising. August and September are typically weaker months for stocks. For example, over the past decade, the S&P 500 has managed an average gain of 0.1% for August. Dismal. If you go back two decades, it becomes an average loss of 0.1%. Why? Maybe it’s due to most of Wall Street taking summer vacation in The Hamptons – meaning trading volumes are low. Or it could be some traders locking in profits ahead of September – which boasts the worst record of any month in the calendar. For example, the S&P 500 has lost an average of 1% each September over the past 10 years.
“Navigating by the Stars Under Cloudy Skies”
Today Fed Chair Jay Powell offered his latest sentiment on the economy and monetary policy from the Jackson Hole Summit. Whilst he leant hawkish (my expectation) – he also admitted he doesn’t know what’s ahead. Nothing wrong with that… better decision making starts by first recognizing what we don’t (or can’t) know. Powell stated “… as is often the case, we are navigating by the stars under cloudy skies”. Question is – what does that mean for markets and rates ahead?
Why Core Inflation Will Remain Sticky
Markets got excited on news of the softer-than-expected CPI headline print today. Headline inflation came in at 3.2% YoY vs expectations of 3.3%. However, what deserves closer scrutiny is not the headline number – it’s Core CPI at 4.7% YoY and shelter costs. For e.g., two-thirds of the monthly inflation increase came from shelter – where rents rose 0.4% MoM. This is now the 18th straight month the price of shelter has risen at least 0.4% MoM. But here’s the thing – there isn’t. much the Fed can do with monetary policy to change this.
For a full list of posts from 2017…