A broad sell-off sent U.S. stocks reeling on Tuesday after a hotter-than-expected inflation report dashed hopes that the Federal Reserve could relent and scale back its policy tightening in the coming months.
This is the last inflation report before the Fed’s policy meeting next week. Investors had hoped the Fed would have some reason to raise rates less dramatically. But the Fed is determined to quash inflation despite the risk of pushing the economy into a recession. And Tuesday’s report dampens hopes that inflation has already peaked.
Financial markets have fully priced in an interest rate hike of at least 75 basis points at the conclusion of the FOMC’s policy meeting next week, with a 33% probability of a super-sized, full-percentage-point increase to the Fed funds target rate. The central bank’s target range is currently 2.25 per cent to 2.50 per cent.
In a note following the August CPI data, Goldman Sachs sees a more aggressive Federal Reserve. “We have raised our forecast for the Fed’s December meeting to a 50bp rate hike (vs. 25bp previously). We now expect a 75bp hike in September followed by 50bp hikes in November and December, which would take the funds rate to 4-4.25 per cent by the end of the year.”
With hopes of a “Fed pivot” firmly dashed, all three major U.S. stock indexes veered sharply lower, snapping four-day winning streaks and notching their biggest one-day percentage drops since June 2020 during the throes of the COVID-19 pandemic.
The VIX rose more than 14% to 27.27.
Go to the Walk The World Universe at https://walktheworld.com.au/
In this week’s market review we explore the fragile upswing in the second half of the week, which can best be understood as a positioning by speculators, betting on a falling market, typically seen as part of a bear market rally sequence, then anything substantive.
I believe the markets are still not fully factoring the evaporation of a FED pivot at least for now, despite the intense and heightened rhetoric. Indeed, as I discussed yesterday, the current bout of inflation has predominately been caused by over stimulation thanks to ultra-low-rate settings, quantitative easing and loose fiscal measures (i.e., Government stimulus).
The truth is this is now coming undone. Thus, I do not regard the slight end of week upswing as a significant turn. As normal, we will start in the US, such a globally dominate market, then cover Europe, Asia and end in Australia.
Digital Finance Analytics (DFA) Blog
Speculators Let Rip As Central Banks Talk Up Higher Rates... [Podcast]
In this week’s market review we explore the fragile upswing in the second half of the week, which can best be understood as a positioning by speculators, betting on a falling market, typically seen as part of a bear market rally sequence, then anything substantive. I believe the markets are still not fully factoring the evaporation of a FED pivot at least for now, despite the intense and heightened rhetoric.
Indeed, as I discussed yesterday, the current bout of inflation has predominately been caused by over stimulation thanks to ultra-low-rate settings, quantitative easing and loose fiscal measures (i.e., Government stimulus). The truth is this is now coming undone. Thus, I do not regard the slight end of week upswing as a significant turn.
As normal, we will start in the US, such a globally dominate market, then cover Europe, Asia and end in Australia. Go to the Walk The World Universe at https://walktheworld.com.au/
This past week has seen a significant shift in market sentiment, driven off the back of hawkish tones from Jackson Hole, as Central Bankers underscored that squashing inflation was their main task, whatever the cost. Markets had been betting on a Fed Pivot soon (recalling the last cycle where markets had their way and the Fed turned), hence the bear market run-up in the past couple of months, but that for now is in tatters.
Further falls into a typically wobbly September can be expected. Mind you, the FED has not explained why their forecasts were so off, so it does beg the question as to whether we should believe them now.
And consider the wider fallout globally, as higher rates and a strong dollar will put many markets and countries under pressure. Note the swing between the USD and Yuan, and the Yen. Perhaps this is not accidental. Plus, the markets are worried about “China slowing, euro zone recession and a hawkish Fed”.
Equity funds recorded the fourth largest weekly outflow of 2022, while bond funds saw investors pull out money for a second straight week.
Go to the Walk The World Universe at https://walktheworld.com.au/
Digital Finance Analytics (DFA) Blog
Bye-Bye Pivot: Market Update 3rd September 2022 [Podcast]
This past week has seen a significant shift in market sentiment, driven off the back of hawkish tones from Jackson Hole, as Central Bankers underscored that squashing inflation was their main task, whatever the cost. Markets had been betting on a Fed Pivot soon (recalling the last cycle where markets had their way and the Fed turned), hence the bear market run-up in the past couple of months, but that for now is in tatters.
Further falls into a typically wobbly September can be expected. Mind you, the FED has not explained why their forecasts were so off, so it does beg the question as to whether we should believe them now. And consider the wider fallout globally, as higher rates and a strong dollar will put many markets and countries under pressure.
Note the swing between the USD and Yuan, and the Yen. Perhaps this is not accidental. Plus, the markets are worried about “China slowing, euro zone recession and a hawkish Fed”. Equity funds recorded the fourth largest weekly outflow of 2022, while bond funds saw investors pull out money for a second straight week.
Go to the Walk The World Universe at https://walktheworld.com.au/
The markets are now sliding into September – always a weak month, and seasoned investors like Jeremy Grantham are calling it, more slides ahead. When you look at what the FED has said, it is highly likely – that is until (if) they change track (again). Until then, there is simply nowhere to hide. Note, they have provided no explanation of why they got past calls so wrong, so why should we believe them this time?
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Digital Finance Analytics (DFA) Blog
Oh September! Just The Start And Nowhere To Hide... [Podcast]
The markets are now sliding into September – always a weak month, and seasoned investors like Jeremy Grantham are calling it, more slides ahead. When you look at what the FED has said, it is highly likely – that is until (if) they change track (again).
Until then, there is simply nowhere to hide. Note, they have provided no explanation of why they got past calls so wrong, so why should we believe them this time?
Today’s post is brought to you by Ribbon Property Consultants. If you are buying your home in Sydney’s contentious market, you do not need to stand alone. This is the time you need to have Edwin from Ribbon Property Consultants standing along side you. Buying property, is both challenging and adversarial. The vendor has a professional on their side. Emotions run high – price discovery and price transparency are hard to find – then there is the wasted time and financial investment you make. Edwin understands your needs. So why not engage a licensed professional to stand alongside you. With RPC you know you have: experience, knowledge, and master negotiators, looking after your best interest. Shoot Ribbon an email on info@ribbonproperty.com.au & use promo code: DFA-WTW/MARTIN to receive your 10% DISCOUNT OFFER.
More market weakness, as the penny drops that rates are going higher and recession risk looms. Despite some still hanging on to the belief of a Fed pivot, it seems the smart money has changed tack. This despite higher oil prices. Next couple of months will be “interesting”, as we see if the Central Bankers turn their words into actions. We will see.
In today’s market review we are going to focus on Fed Chair Jerome Powell speech at Jackson Hole, just 9 minutes in length but enough to move the markets down significantly.
For the Fed’s monetary policies to have any effect, markets must transmit them via the financial conditions to the actual economy. And the Fed needs to make sure this happens. And today was an effort by Powell to get this job done.
Speech: https://youtu.be/vhMRynjm3CI
The speech was one of the strongest ever by the Fed chief, reflecting the onerous burden borne by the central bank in curbing inflation retreating ever so slowly from four-decade highs.
First Powell said inflation needed to be controlled. That was their main mandate.
Next he signalled there will be more rate hikes in the months ahead, taking the cash rate well above the neutral rate – meaning that they intend to deliberately slow the economy.
And he acknowledged this will hurt households and businesses.
And acknowledge that the current labour market was out of wack.
So, this message cut directly across the ranks of those saying the FED will pivot – arguing the FED has really been signalling that it would soon “pause” the rate hikes or “pivot” to rate cuts, even though the Fed had raised its policy rates four times this year, including twice by 75 basis points, the biggest rate hikes in years.
Go to the Walk The World Universe at https://walktheworld.com.au/
In today’s market review we are going to focus on Fed Chair Jerome Powell speech at Jackson Hole, just 9 minutes in length but enough to move the markets down significantly.
For the Fed’s monetary policies to have any effect, markets must transmit them via the financial conditions to the actual economy. And the Fed needs to make sure this happens. And today was an effort by Powell to get this job done.
Speech: https://youtu.be/vhMRynjm3CI
The speech was one of the strongest ever by the Fed chief, reflecting the onerous burden borne by the central bank in curbing inflation retreating ever so slowly from four-decade highs.
First Powell said inflation needed to be controlled. That was their main mandate.
Next he signalled there will be more rate hikes in the months ahead, taking the cash rate well above the neutral rate – meaning that they intend to deliberately slow the economy.
And he acknowledged this will hurt households and businesses.
And acknowledge that the current labour market was out of wack.
So, this message cut directly across the ranks of those saying the FED will pivot – arguing the FED has really been signalling that it would soon “pause” the rate hikes or “pivot” to rate cuts, even though the Fed had raised its policy rates four times this year, including twice by 75 basis points, the biggest rate hikes in years.
Go to the Walk The World Universe at https://walktheworld.com.au/
