Central Bank Week

Thought to ponder…

“Most of us don’t think about the motivating force behind our decisions as we approach the unknowable. We don’t realize when we’re choosing faith or fear. Before making any significant decision or taking any important action, you have to ask yourself, ‘Am I doing this based on faith or fear? Am I doing this based on confidence or worry?’ Remember this: success follows faith and failure follows fear. Make sure you choose faith over fear.”

Darrin Donnelly

Think Like a Warrior

The View from 30,000 feet

Last week was central bank week, with major news from US and Japanese policy makers. In the US, Powell surprised markets by looking through recent inflationary pressures and expressing confidence that disinflationary trends would persist. Adding to the dovish tilt, aggregated forecasts by Fed leadership indicated that expectations for higher growth, lower unemployment and higher inflation could co-exist with an expectation for rate cuts. Importantly, the Fed also inched up their long-term expectations for neutral rate for Fed Funds, opening the door for a substantive “higher for longer” debate. Another dovish surprise coming out of the US was clarity on the plan for QT. Although less unexpected because it has been leaked the week before, the Bank of Japan disembarked from their negative rate policy for the first time since 2016. The financial markets provided clear feedback on what market participants thought of each policy move. In the US, the Fed meeting reinvigorated a rally in both risk assets and Treasuries taking the S&P500 to fresh highs and ending a two-week selloff in Treasuries that left the yields flirting with levels where the markets began to struggle last summer. In Japan, the JPY told the true story when it weakened off the back of the BoJ announcement, suggesting markets interpreted the rate hike and policy adjustments as more lip service than action. Overall, the markets took central bank actions last week as confirmation that inflation is still heading in the right direction and policy will be on a path to normalization this year, which, if it ends up being true, is supportive of risk asset prices.

Details contained in Macro Thoughts research peice

Key take aways from the Summary of Economic Projections, press conference and market reaction to Fed decision

The path of the Fed in 2024 will likely come down to three variables: Housing, Wages and Energy

Flies in the ointment for the Fed – Housing signaling pent up demand and Wages tied to participation and immigration

Conference Board Leading Economic Index turns positive for the first time in two years

Focus Point Sector Rotation Update: FOMC and Nvidia GTC AI Conference boost positive trends