Tag: Monetary Policy

Here Comes The Wealth Destruction… [Podcast]

As foreshadowed, we are now seeing the sharp reversal in asset prices, which were driven through the roof due to ultra-low interest rates, central bank quantitative easing, and government support through COVID plus huge debt growth.

Of course, the recent gains were largely spurious, and a correction was always going to come – hopefully some watching our shows are best prepared for this process (which will take some time), but be clear wealth will be destroyed across property, shares, bonds, metals and crypto.

No surprise then that U.S. stocks ended sharply lower on Friday, tumbling to two-month lows as a warning of impending global slowdown from FedEx hastened investors’ flight to safety at the conclusion of a tumultuous week. The session also marked the monthly options expiry, which occurs on the third Friday of every month. Options-hedging activity has amplified market moves this year, contributing to heightened volatility.

All three major U.S. stock indexes slid to levels not touched since mid-July, with the S&P 500 closing below 3,900, a closely watched support level and suffering its worst weekly percentage plunge since June.

“It’s been a tough week. It feels Halloween came early” said David Carter, managing director at JPMorgan in New York. “We are facing in this toxic brew of high inflation, high interest rates and low growth, which isn’t good for stock or bond markets.”

Go to the Walk The World Universe at https://walktheworld.com.au/

Digital Finance Analytics (DFA) Blog
Digital Finance Analytics (DFA) Blog
Here Comes The Wealth Destruction... [Podcast]
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Here Comes The Wealth Destruction…

As foreshadowed, we are now seeing the sharp reversal in asset prices, which were driven through the roof due to ultra-low interest rates, central bank quantitative easing, and government support through COVID plus huge debt growth.

Of course, the recent gains were largely spurious, and a correction was always going to come – hopefully some watching our shows are best prepared for this process (which will take some time), but be clear wealth will be destroyed across property, shares, bonds, metals and crypto.

No surprise then that U.S. stocks ended sharply lower on Friday, tumbling to two-month lows as a warning of impending global slowdown from FedEx hastened investors’ flight to safety at the conclusion of a tumultuous week.

The session also marked the monthly options expiry, which occurs on the third Friday of every month. Options-hedging activity has amplified market moves this year, contributing to heightened volatility.

All three major U.S. stock indexes slid to levels not touched since mid-July, with the S&P 500 closing below 3,900, a closely watched support level and suffereing its worst weekly percentage plunge since June.

“It’s been a tough week. It feels Halloween came early” said David Carter, managing director at JPMorgan in New York. “We are facing in this toxic brew of high inflation, high interest rates and low growth, which isn’t good for stock or bond markets.”

Go to the Walk The World Universe at https://walktheworld.com.au/

The Monetary Arms Race Is Here!

The RBA was interrogated by Parliament today regarding its monetary policy stance and interest rates. But it was all a bit pointless as really the Federal Reserve sets interest rates in the US, but effectively also for the entire world, given the fact that the US dollar behaves as the reserve currency.

Persistently high inflation in the United States and elsewhere has forced the Federal Reserve to aggressively raise interest rates, giving the dollar a significant yield advantage that has triggered a rampaging rally against its major global peers. That will put pressure on the RBA.

Eventually, the Fed’s actions will come back to bite it and the US. By then all the many trillions of dollars of stimulus work done during the pandemic will have been unwound. What a phenomenal waste of time, money and effort.

The fallout on the FED’s myopia will be felt more in other countries, including Australia, which means we are on the end of the see-saw driven by the US. This is soft power at its worse, transmitted to a monetary system which is built to favour one nation over the rest.

The question is of course whether this will change. Without major reform it will not, not least in recognition of fact that many international institutions such as the IMF, WEF and BIS are strongly aligned to the interests of the US. So The Monetary Arms Race Is Here.

Go to the Walk The World Universe at https://walktheworld.com.au/

Today’s post is brought to you by Ribbon Property Consultants.

Digital Finance Analytics (DFA) Blog
Digital Finance Analytics (DFA) Blog
The Monetary Arms Race Is Here!
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Is It Time For A Soft Landing? With Tarric Brooker [Podcast]

My latest Friday afternoon chat with Journalist Tarric Brooker. We look at the latest data and discuss the implications.

His charts are at: https://avidcom.substack.com/p/charts-that-matter-16th-september

Go to the Walk The World Universe at https://walktheworld.com.au/

Digital Finance Analytics (DFA) Blog
Digital Finance Analytics (DFA) Blog
Is It Time For A Soft Landing? With Tarric Brooker [Podcast]
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The Monetary Arms Race Is Here!

The RBA was interrogated by Parliament today regarding its monetary policy stace and interest rates. But it was all a bit pointless as really as the Federal Reserve sets interest rates in the US, but effectively also for the entire world, given the fact that the US dollar behaves as the reserve currency.

Persistently high inflation in the United States and elsewhere has forced the Federal Reserve to aggressively raise interest rates, giving the dollar a significant yield advantage that has triggered a rampaging rally against its major global peers.

That will put pressure on the RBA. Eventually, the Fed’s actions will come back to bite it and the US. By then all the many trillions of dollars of stimulus work done during the pandemic will have been unwound. What a phenomenal waste of time, money and effort.

The fallout on the FED’s myopia will be felt more in other countries, including Australia, which means we are on the end of the see-saw driven by the US. This is soft power at its worse, transmitted to a monetary system which is built to favour one nation over the rest. The question is of course whether this will change. Without major reform it will not, not least in recognition of fact that many international institutions such as the IMF, WEF and BIS are strongly aligned to the interests of the US. So The Monetary Arms Race Is Here.

Go to the Walk The World Universe at https://walktheworld.com.au/

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.

On A Recession Doorstep… [Podcast]

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/

Digital Finance Analytics (DFA) Blog
Digital Finance Analytics (DFA) Blog
On A Recession Doorstep... [Podcast]
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On A Recession Doorstep…

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/

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.

Digital Finance Analytics (DFA) Blog
Digital Finance Analytics (DFA) Blog
Speculators Let Rip As Central Banks Talk Up Higher Rates... [Podcast]
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Speculators Let Rip As Central Banks Talk Up Higher Rates…

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/

Here Comes Higher Rates, But… [Podcast]

We had a series of important events this week which really underscored for me some of the central questions about inflation, inflation targeting and Central Bank policy. So today I want to explore this in more detail, as the ECB lifted rates by 75 basis points and the Dow closed higher on Thursday after struggling for direction as Federal Reserve officials including chairman Jerome Powell vowed to continue the fight against inflation.

The broader market was choppy and struggled for direction, swinging between gains losses as Treasury yields climbed on hawkish remarks from Powell vowing to persist with rate hikes. Over in Europe the European Central Bank hiked interest rates by a historic amount and President Christine Lagarde hinted it could do the same again as part of “several” future moves to escalate officials’ attack against rampant inflation.

So, the common theme from Central Bankers is inflation must be contained. Indeed, Philip Lowe yesterday reemphasised this imperative, despite the impact in the short run, because of the longer-term consequences in a speech he gave.

But the deeper question is whether Central Bankers know what they are doing. And Mervyn King at one time the Governor at the Bank of England, was very critical of the assumptions underlying the attempt to control the current inflation cycle.

Go to the Walk The World Universe at https://walktheworld.com.au/

Digital Finance Analytics (DFA) Blog
Digital Finance Analytics (DFA) Blog
Here Comes Higher Rates, But... [Podcast]
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