experienced a brief retaliatory rebound. Last week, US stock failed to go further. As the market regained its concerns about the path of Fed currency tightening, all three major stock indexes fell and closed down.
The sudden hawkish remarks of Fed officials caught investors off guard. Several Fed officials said that due to little evidence that price pressure is weakening, the pace of rate hikes cannot be quickly relaxed in the future. At the same time, institutions have begun to pay attention to future recession risks and pressures for corporate profit declines. The expectations of monetary policy and the fluctuations in economic data will continue to become important incentives to disturb the market in the short term.
Hawks raised their heads to cause the Fed's policy path to be blurred
11 after the November interest rate meeting, the expectation of the Fed's slowdown in interest rate hikes gradually fermented with the support of inflation data and the remarks of some officials. However, as hawkish views make a comeback, the future policy paths are blurred again.
First Financial reporter noticed that after Fed Vice Chairman Brainard and Fed Director Waller expressed their statements that slowed down the pace of interest rate hikes in December at the beginning of the week, tough voices within Federal Open Market Committee (FOMC) once again "appeared". The remarks of the "hawkish" voter and St. Louis Fed Chairman James Bullard once caused an uproar. He said that the austerity policy so far has "limited impact on observed inflation" and that interest rates need to be raised in the future, and gave a 5%-7% interest rate range. Boston Fed Chairman Susan Collins mentioned the possibility of another 75 basis points hike.
Oxford Economic Research Institute senior economist Bob Schwartz said in an interview with the First Financial reporter that although the Federal Reserve is encouraged by the moderate performance in the latest Consumer Price Index (CPI) report, more data is needed to prove that it is time to relax the rate hike. "Within the Federal Reserve, many people are more worried about relaxing the brakes too early than excessively raising the interest rates needed to suppress inflation."
The resilience of economic data has also made it not easy for the Fed to relax and tighten. The monthly rate of retail sales in the United States increased by 1.3% in October, indicating that despite the continued inflation of , the consumption demand of US households has not been significantly impacted. At the same time, the number of initial unemployment benefits continued to decline, indicating that the labor market is still tight, which may further aggravate the pressure on corporate wages and thus increase the difficulty of price declines.
Citi Chief American economist Andrew Hollenhorst was not surprised by Brad's remarks because it was supported by the data. He said: "The Atlanta Fed's basic inflation indicator continues to remain above 4.7%, which indicates that the policy interest rate needs to be higher than 5% respectively before the real interest rate will be substantially positive. This is a condition for restrictive monetary policy agreed by both Federal Reserve Chairman Powell and Vice Chairman Brainard ." The market's pricing for future interest rate hikes has increased. According to data from the CME Group's interest rate observation tool (FedWatch), although the probability of raising interest rates by 50 basis points in December remains above 70%, the median interest rate terminal high point in June next year has risen to 5.05%, up 7 basis points from last week. In the market, the policy-sensitive 2-year treasury bond yield was 4.51%, while the 10-year treasury bond yield treasury bond yield fell to 3.81%. The inverted range of nearly 70 basis points between the two is at a high of nearly 40 years, indicating investors' concerns about the recession.
Schwartz told the First Financial reporter that so far, the surge in inflation has not hindered consumption as consumers generally accept higher prices. "But this acceptance is not entirely due to the actual growth of income. The large amount of savings accumulated during the epidemic and the recent surge in borrowing have supplemented household purchasing power. Consumers will largely determine the stickiness of inflation and how the Fed will respond actively." Schwartz believes that "the data still supports the Fed's continued interest rate hikes to restore inflation to its 2% target. The risks in the future are still high. The Fed's going too far in interest rate hikes will lead to a recession."He expects a 50 basis point rate hike in December and continues to 25 basis points in February next year, and then may suspend the tightening cycle and observe the impact of policy.
Can US stocks go further
0 US stock rebound brought about by CPI favorable expectations and loose policy expectations have successfully attracted the influx of bottom-line influx. According to data from financial data provider Refinitiv Lipper, the net inflow of US stock funds in the week ended November 16 was US$16.65 billion, the largest weekly inflow since December 29 last year.
However, market resistance is also regaining, and the major stock indexes fell across the board last Wednesday. Investors' focus has turned to the Federal Reserve's policy stance and the risk of deteriorating potential economic outlook. Ameriprise Anthony, Chief Market Strategist at Financial Saglibene believes that technical “resistance” makes the bulls difficult as S&P 500 index rebounds to 200-day moving average . He mentioned St. Louis Federal Reserve Chairman Brad’s statement on interest rate targets. “This is a very large range, if it is 5%, the market may perform well because investors have digested this expectation, but if it is really to 7%, it is really bad.” He said. The uncertainty of the inflation path of
has also made the outside world’s assessment of the Fed’s policy outlook Difference. Although interest rate futures show that the Fed will cut rates in in the second half of next year, Bank of America latest monthly fund manager survey shows that respondents generally expect that the decline in inflation does not mean that the Fed rate cut will also occur at the same time. They are increasingly worried that recession and stagflation will plague the economy. Continuous high inflation, the deterioration of the situation in , the "hawkish" is the largest tail risk in the eyes of institutions.
US Consulting Association (Conference) The U.S. leader in economic index fell 0.8% in October, down for the eighth straight month, said Ataman Ozyildirim, senior economic director of the Chamber of Commerce. “The sluggish data reflects the deterioration of consumers’ outlook amid high inflation, rising interest rates and a decline in housing construction and manufacturing outlook. It is expected that the US real GDP will increase by by 21.8% year-on-year in 2022, and the recession may begin around the end of the year and continue until mid-2023. "
Wells Fargo also warned in its weekly market report that signs of corporate layoffs and profit margin squeeze have appeared, and the outside world may be too little concerned about the risk of recession in the U.S. economy.
For future market outlook, Mike Wilson, chief strategist at Morgan Stanley , reminded investors to remain flexible. "After experiencing 12 consecutive months of bearishness, we will now enter the final stage of a bear market. Two-way risks must be paid attention to, and layoffs may be a bad signal of the arrival of recession. "In view of economic risks, Wilson reiterated his previous view that bottom-up market earnings expectations in 2023 are too high. "We see the S&P 500 hit a 3,000-3,300 trough in the first quarter of 2023, which occurs before the final low of EPS and is a typical manifestation of a return to the stock market or bond market." Ed Clissold, chief U.S. strategist at
Ned Davis Research, also said that it may be too early to return to the stock market or bond market. "Cash yields may still be attractive, and the Fed is unlikely to change its current tightening policy stance before inflation is broken, which will mean that there is still room for decline in the prices of risky assets such as stock ." "He said.
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