Yesterday was Federation Day. Nothing else mattered. World stock exchanges have also understood this well, because the only topic of conversation, of course, will be raising rates, how much, how, when, why and how we interpret it. The Fed boss knew how to be politically correct by announcing a 0.75% increase, and speakers could only applaud his talent, his greatness and his ability to see the future. No, because we will understand. Aside from the Fed’s bid announcement, it’s impressive to see the ability they need to project into the future.
Audio from June 16, 2022
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Thank you, Mr. Powell
So it hasn’t been 28 years. The last time the Fed raised rates was 0.75% in 1994, and the head of the US Federal Reserve was Alan Greenspan. Today, he is an old gentleman, whom we occasionally choose from mothballs to ask his opinion of the markets, and he is generally very depressing. But still he introduced the term “irrational wealth”, talking about markets. As a young trader at the time, I still remember it. My therapy on this topic is not over yet!
But let’s move on, we are not here to teach a lesson in history, but to live with passion the historical moments we live in. That’s why Jerome Powell, the master of us all, has announced an increase in key rates by 75 basis points. From now on, we are in the range of 1.25% to 1.75%, which seems to be monthly compared to the beginning of the year and which, moreover, should seem completely unrealistic for the head of the ECB, which still has negative rates, she said. And yet yesterday’s statement will make all markets tremble with joy, which suddenly fell unconscious before the statements of the genius Powell. However, 48 hours ago, we were convinced that an increase of 75 basis points would instantly cause a decline and that the sky would fall on our heads. Remembering that a 0.5% increase would be an inflationary catastrophe and practically an incentive to gallop inflation.
Why was what the Fed said well received ???
Interpretation of things
Again, the answer must be sought in the interpretation of things. According to Mr. Powell. Last night, the head of the Fed made it clear that he was not trying to put the economy in recession, but rather trying to slow inflation, keeping the economy strong. Obviously, this confirmation seemed to please the market, even if you admit that it would be very badly noticed if Powell came and said he did not care about the recession, because he has a well-paid job for the next four years and all, what he wants is to break inflation and all !!!
And then the market was also able to show its joy and happiness, because the Federal Reserve also showed that it knew exactly where it was going, where it wanted to go, and it knew where Christmas rates would be – like bitcoin – that it KNEW where it would be. inflation at the same time, and that at the next Fed meeting they were not yet sure what they were going to do, but there was no certainty that they would raise the rate by another 75 basis points. All in conditional form with very small caveats, but then very small symbols at the bottom of the speech. Therefore, we have the impression that the fact that the Central Bank showed some confidence and some almost unanimity (voted 10 against 1) in yesterday’s decision, will calm the markets. It remains to be seen. Remember that despite yesterday’s rebound and the fact that futures rose 0.5% this morning, the S & P500 is still in a bear market, and we still haven’t seen the slightest sign of lower inflation, peak inflation, and we will still swim. like the Titanic in the middle of a sea full of icebergs, and the orchestra on board continues “closer to you, my God” on the loop.
So Jerome Powell calmed his world, secured his job by communicating diplomatically and showing that he knew exactly where he was going. Or almost. And I think that was the part that was interesting last night.
We were told that the next increase in July “will not necessarily be 0.75%.” What we interpreted as: “if it’s not 0.75%, it will definitely be 0.5%” – we do not know, but at the moment we prefer to see the glass in half and hope that “only” 0, 5% will increase rather than play the pessimist and consider an increase of 1%. Which would be tantamount to the fact that the next rate of inflation would be purely catastrophic.
Interestingly, yesterday everyone thought it was “cool” that Powell did not expect a 0.75% increase in July. So I would like to add cold water to the joy and happiness we feel this morning, recalling that last Friday, about 150 hours ago, we would be happy to put our bonus in 2023 on the fact that the Fed will NEVER raise rates of 0.75%. But on the other hand, we are happy that maybe in 6 weeks the Fed will not raise the rate by 75 BP. It’s a bit like Nasdaq’s 10% rebound because we thought the Fed would take a break in September …
But hey, let’s not spoil our happiness, because all markets seem to have taken this FOMC meeting as a “relief.” In addition, it is true that the Fed impresses with its control over the future and the fact that they know EXACTLY where we are going in terms of rates and where inflation will be in 7 months, as today. Therefore, last night they announced that by the end of the year the key rates will be at 3.4%, and by the end of 2023 they will be at 3.8%. They also announced that inflation should be around 5% and then fall sharply to 2%. I must say, like Hannibal Smith, I like it when a plan is implemented without a hitch. However, I would like to point out that The Risk Agency was a TV series that Hannibal Smith had died and Barracuda had just celebrated his 70th birthday, and that he was part of Dancing with the Stars.
Therefore, the market welcomed the fact that the Fed KNEW where it was going, KNEW what it was doing, and, above all, knew where inflation would be in December, and that the forecast and the announced level are reassuring. This offers a single conclusion; rising rates work. One can only hope that the economy will not collapse by then. But I must say that I am impressed with the trust we have in the Fed. Especially when you remember that six months ago they did not see inflation. What they didn’t even know they would do with the bets 48 hours ago, but we trust them to happen in 7 months. It is good that we are obviously not very outraged.
We’re back, and it’s going on this morning
In short, the bottle does not matter while you are drunk. It looks like the speakers got what they wanted. Although we’re not sure it was 24 hours ago. Yesterday, the indexes reached a low mark, and it remains to be seen how long it will last. From a technical point of view, after 5 consecutive sessions, we can hope that the weather will be good for a few days, but I still do not feel completely reassured in case of bad news. This morning, Japan opened sharply higher, but has since fallen. Nikkei still grew by 1.18%. Hong Kong fell 0.4%, and China did little.
Elsewhere, oil has been falling for two days and is feeling well. Even the barrel remains on the rise, seeing that it traded at $ 116 against $ 121 three days ago, somewhat reassuring. For a moment. Gold costs $ 1834. I would not comment. And on the bitcoin side, it’s also recovering, as the crypto star has $ 22,300 after it approached $ 20,000 shortly before Powell spoke.
News of the day, figures of the day
As for today’s news, we will not lie to each other, there are MANY, MANY, but then too much can be said about the Fed and its performance last night to leave room for the slightest “other” news. BUT we’ll still note that we allow ourselves to think in official circles that Musk could reaffirm his interest in buying Twitter today – he’s still the only one who buys super-expensive things when everyone’s on sale.
For today’s figures will be the CPI in Italy, car sales in Germany, SNB, which will announce its decision on rates, and then, in the US, we will start new housing – look – then job applications, see also, and Philly Fed. At the moment, futures are up 0.3%, bitcoin is up, and Powell is handsome, strong and smart, and we love him very much.
Have a nice day at the bottom of the pool or refrigerator freezer, and tomorrow we will meet again for new adventures and summing up the week! May the power of Nespresso be with you!
See you tomorrow !
“The Federal Reserve seeks to fulfill our legislative mandate on stable prices and maximum employment. »