In today’s briefing:
- Fed Snap (Dec 13 Meeting): Current & Future Takeaways
- Mint Macro Roundup: Powell Has Gifted Fed Pivot. Markets in Merry. What to Expect from ECB and BoE?
- Central Bank Review: Powell, a Genius or a Madman? 2024 Looks like a Year of Fat Tails
- Rates: The Old Lady Is Not for Turning
- Bull Steepening Watch – Is Lower Yields Really What Risk Assets Want?
- EIA Nugget: Another STRONG Demand Week for Energy in the US
- CX Daily: In China, Hydrogen’s Star Rises
Fed Snap (Dec 13 Meeting): Current & Future Takeaways
- Although an unchanged meeting outcome was priced-in, the surprises were conditionally dovish
- The presser, economic projections, dotplot and post-meeting statement collectively moved financial markets
- My dove-hawk FOMC scale offers additional information on tracking the evolving Fed speak and policy expectations
Mint Macro Roundup: Powell Has Gifted Fed Pivot. Markets in Merry. What to Expect from ECB and BoE?
- FOMC decided to hold rates steady and their statement suggested that members were not expecting further rate hikes.
- FOMC’s economic projections suggest 3 rate cuts next year as well as a soft landing for the US economy, reaffirming market view.
- Equities surge while dollar falls and bond-yields fall to multi-month low. Gold and Silver rally sharply. EUR and GBP rally but underperform relative to JPY and AUD.
Central Bank Review: Powell, a Genius or a Madman? 2024 Looks like a Year of Fat Tails
- USD markets felt almost EM like for a couple of hours after Jay Powell and the committee allowed markets to chase the cutting narrative by communicating three expected cuts in the dot plot for 2024.
- I am not always convinced that the dot plot is a wise guidance tool as policy makers likely judge that a dot signaling three cuts relative to market pricing (ahead of the meeting) hinting of more than four cuts net/net should lead to a hawkish surprise.
- The opposite of course happened since narrative chasers in markets rather look at the sequential move than the nominal forecast.
Rates: The Old Lady Is Not for Turning
- Most central banks held their rates in December, including the BoE. The MPC pushed back against dovish pricing with its forecasts and interpretation of the news.
- It also pointed to how the UK’s fundamentals are worse than in the US and Euro area, with excessive wages and underlying price inflation preventing a sustainable return to target.
- Three MPC members still favour hiking, and most have a hawkish bias. The BoE looks nowhere near a cut, and nor should it be. We see it holding through 2024.
Bull Steepening Watch – Is Lower Yields Really What Risk Assets Want?
- Markets are pricing in heavy cuts for next year as inflation keeps coming in soft, making a soft landing the base case for the bulls, but everything comes at a price.
- But how are assets likely to perform if the market narrative is correct and yields will indeed come down in a continued bull-steepening fashion, which in our view is the most likely scenario in H1 2024?
- We have pulled out some of our cross-asset beta studies from our data-library to provide you with an overview of how assets perform during various yield curve regimes.
EIA Nugget: Another STRONG Demand Week for Energy in the US
- Welcome to our short- and sweet data nugget based on the weekly EIA numbers on the implied energy demand in the US economy.
- We use the EIA data but adjust it for seasonality and data issues to give a better picture of the underlying trends in the US economy.
- The demand for transportation fuel spiked again in the first week of December and there are no signs of seasonal weakness in our congestion tracker.
CX Daily: In China, Hydrogen’s Star Rises
- Hydrogen / In Depth: In China, hydrogen’s star rises
China-Vietnam /: China, Vietnam leaders agree to strengthen ties as Xi makes official visit
Meeting /: China’s top leadership pledges strong focus on growth next year
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