Calendar Week 19-2023
All three Central Banks (AU, US, EU) raised rates last week and US employment was also very strong, which would suggest rates still have more upside.
US Fed head Bullard spoke on Friday and his comments drove most of the pricing for the day. He gave mixed signals though and his highlights were:
• Base case is slow growth, declining inflation.
• Regional banks have had a couple of issues but represent a small share of US financial intermediation. Sense is that regional banks will do just fine.
• Fed can still achieve a soft landing.
• Ultimate impact of bank stress on economy will be small.
• Wall Street “glued” to transitory inflation story, not prepared if inflation persists and Fed has to do more with rates.
• Aggressive policy has stemmed the rise of inflation, but not clear it has put inflation on a clear downward path.
• Policy at “low end” of restrictive zone, not yet clear if restrictive enough for a downward inflation path.
• Thinks Fed will have to “grind higher” on rates due to slower decline in inflation than others.
• Ready to be “data dependent” with an “open mind” on whether to pause or hike at June meeting.
So which comments would you look at most, hawkish “higher rates” or the dovish “soft landing? Stock market it took it as dovish and bolted higher, as did interest rates too though. We still have the battle between bonds and stocks, who will be right?
“Chicken or egg – for The Fed to fold, the market will have to crash but the market won’t crash because everyone knows The Fed will fold and juice stocks back to un-reality” – source Zerohedge.
Elsewhere the US ran up on jobs but gave it all back on Bullard. Commodities jumped up, following the stock market theory that all will be OK. Gold and bitcoin weaker as risk on dominated.
The week ahead will continue to supply volatility with US inflation numbers mid-week.
USD – 100.50 has held firm in a market trading sideways, caught between risk on and risk off markets and events. Carbon copy of last week ahead of us I suspect. Will all hinge on Wednesday’s CPI.
AUD – RBA surprised with rate hike, which they had to do so good on them, along with rising commodity prices the Aussie jumped a cent and looks clear to test resistance at 68 cents now.
EUR – Also raised rates but the presser disappointed and bears took hold. 4hr looks choppy and it could go either way from here. Momentum not giving any indication right now.
GBP – The highest it has been in 12 months, which has formed as a resistance level circa 1.2650. Momentum on the top side too, so I see this fading from here back to mid 1.24’s before having another test of the resistance.
JPY – Nice swing off the 50ema puts the bulls in control here, target would be a smidge above last weeks high at 138.