Author: Martin North

The Markets are starting to believe Central Banks are going to blink – as we saw yesterday when the RBA lift the cash rate by a less than expected 0.25% – though as I said one smaller rate rise does not a pivot make.

The S&P 500 index posted its biggest single-day rally in two years on Tuesday after softer U.S. economic data and Australia’s smaller-than-expected interest rate hike stirred hope for less aggressive tightening by the Federal Reserve.

The RBA is the first major central bank to recognize that now is the time to slow down after aggressively raising rates this year, said Anthony Saglimbene, chief market strategist at Ameriprise Financial. “There’s hope that the Federal Reserve at some point in the fourth quarter will say the same thing. Not stop raising interest rates, but just slow the pace,” he said. “That’s what the market’s kind of rallying on below the surface.”

Still, Fed Governor Philip Jefferson said inflation is the most serious problem facing the U.S. central bank and it “may take some time” to address. San Francisco Fed President Mary Daly said the central bank needs to deliver more rate hikes.

Overnight, the US Labor Department in its Job Openings and Labor Turnover Survey, or JOLTS showed vacancies remained above 10 million for the 14th straight month. Layoffs also stayed low, signs of a still-tight labor market, which likely keep the Federal Reserve on its aggressive monetary policy tightening path.

“Even as higher interest rates and inflation, and weaker business and consumer confidence are beginning to tamp down labor market activity, the labor market still remains healthy,” said Sophia Koropeckyj, a senior economist at Moody’s Analytics in West Chester, Pennsylvania. “We expect that the Fed is not yet ready to pause.”

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