Many people seem puzzled as to why the market continues to trade higher. For example, some readers have told me they missed the rally – wondering why things have not completely unravelled sooner. They’ve chosen to sit things out for one reason or another. And that makes sense… I’m sure they are not alone. Why are markets defying gravity? And how long could it continue? The short answer for a while yet. And the driver is liquidity.
"Interest Rates / Bonds"
Should We Cheer the Latest Inflation Report?
April Consumer Price Inflation (CPI) headline came in at 4.9% – its lowest level since Feb 21. However, Core CPI was 5.5%. As we know the Fed are more focused on Core. Here’s what the Fed will be watching – it’s all about labor and shelter.
“One and Done”… Not Yet
The market wanted “one and done”… that was the expectation. Powell spoiled the party. Whilst the market expected a 25 bps Fed hike – what it did not know was whether any hike would be ‘dovish’ or ‘hawkish’? For example, a dovish hike would be something like “we see the end of inflation… we’re winning the fight”. On the other hand, a hawkish tone would be sentiment to the effect of “it’s still premature to make that call”. We heard more of the latter… less of the former.
Pop then Drop! Green Light for Fed Hike
Investors cheered the news of a slightly lower than expected CPI print from March. However, Core Inflation exceeded expectations and actually increased. That’s important – as that’s what the Fed are focused on. Here’s the thing: with Core inflation running at 5.6% YoY – don’t expect cuts anytime soon. It’s almost 3x the Fed’s target. Yes inflation is cooling – slowly – but not where the Fed need it to be. From mine, you can lock in another 25 bps for May 2nd. Bond markets see that. Equities are yet to get the memo
For a full list of posts from 2017…