In today’s briefing:
- Goodbye to Ultra-Low US Short-Term Interest Rates? Financial Markets Well Ahead of the Fed
- Transitory Disinflation in 2025?
- May Themes and Thematic Portfolio Review
- The Market’s Dance of Thrusts and Dips
- Central Banks Globally: Cut, Hike or Pause?
- Steno Signals #102 – Bad inflation news everywhere
Goodbye to Ultra-Low US Short-Term Interest Rates? Financial Markets Well Ahead of the Fed
- Markets are reviewing their outlook about a return to a lower Fed policy rate in a more hawkish manner. Their long-standing secular stagnation thesis could be jettisoned.
- The Fed’s low estimate for the neutral policy rate (r*) is based on perceived degradation of US economic growth after the bursting of the internet bubble and global financial crisis.
- Higher US short-term interest rates may have been stimulative due to high levels of interest-earning financial assets held by corporations and households, while large budget deficits also support economic activity.
Transitory Disinflation in 2025?
- We peered into 2025 to see how U.S. inflation may evolve, focusing on changes in immigration policy , the evolution in productivity and the effects of the election on inflation.
- Upward pressures on inflation will come from changes in immigration policy and a Trump win. Productivity gains are uncertain and AI-driven gains will take a long time to be realized.
- Such an environment is typical of a mid- or late-cycle expansion. It is bond price unfriendly, and neutral or positive for stock prices, depending how the nominal growth outlook evolves.
May Themes and Thematic Portfolio Review
- A monthly review of how the markets and our themes are currently performing
- Analysing what went wrong and what went right in stocks and sectors
- Highlighting positions added or removed from the thematic investment portfolio
The Market’s Dance of Thrusts and Dips
- We believe the bullish implication of Triple 70 Breadth Thrust triggered on May 6 is still alive.
- The U.S. equity market has just hit a temporary air pocket and should experience a shallow pullback.
- The key risk is how the bond market reacts to a continuing flood of issuance in June, which could put upward pressure on yields and downward pressure on risk appetite.
Central Banks Globally: Cut, Hike or Pause?
- While most central banks worldwide are on-hold currently, on average, rate cuts are preferred over rate hikes
- The easing proportion of EM central banks is greater than that of DM central banks at this time
- The majority of central banks globally are typically inclined toward the policy rate preferences of the Fed and BoE on balance
Steno Signals #102 – Bad inflation news everywhere
- Happy Sunday and welcome to our weekly flagship editorial.
- The inflation progress has stalled, and it is not just a US phenomenon.
- It is spread to Europe and with freight rates rapidly on the rise, we are likely no longer getting any help from goods inflation in coming quarters.
💡 Before it’s here, it’s on Smartkarma
Sign Up for Free
The Smartkarma Preview Pass is your entry to the Independent Investment Research Network
- ✓ Unlimited Research Summaries
- ✓ Personalised Alerts
- ✓ Custom Watchlists
- ✓ Company Data and News
- ✓ Events & Webinars
