Daily Charts
The probability of a 75 bps rate hike in September, dropped below 50% after the FOMC minutes were released.
From John Hussman’s latest (Link), it seems the Fed is pivoting but looking at the Taylor rule or other monetary variables, it suggests we need a much higher Fed funds rate. This will be a masterclass from Powell, threading the needle navigating a soft landing or his Arthur Burns moment. It appears he won’t be aggressive with monetary policy electing for a recession.
Wall Street appears convinced that the half-point retreat from the highest core inflation in 40 years, currently at 5.9%, will encourage the Fed to “pivot” to lower rates in no time. Yet when the Federal Funds rate has been lower than core inflation, with core inflation above even 2.5%, the Fed has never shifted to easing unless recession has pushed the unemployment rate toward 6% or higher. It’s also worth noting that the only bear market low in history that occurred in the midst of a Fed tightening cycle was in 1987, at an S&P 500 forward operating P/E of less than 10, and a price/revenue multiple less than a quarter of today’s level.
It’s a big experiment at this point, we haven’t had a real Fed funds rate this deeply negative in our lifetimes.
A big question becomes, can interest rates stay this low forever or are they temporarily suppressed by monetary policy?
In July 2021, markets assigned a 6% chance that 10Y treasury yields would be greater than 2.5% in July 2022… They were wrong. Markets believe there is a 13% chance of yields greater than 4% a year from today. The average 10Y treasury yield between 1987-2007 was 6.1%.
The majority of pension plan and investor portfolios will suffer in a rising rate environment. Public equities, fixed income, real estate and private equity will all struggle and this makes up 92% of the average pension plan portfolio.
Retailers overbuilt inventories reacting to Covid shortages, inventory-to-sales ratio could be pointing to a manufacturing slowdown.
Inflation in the UK officially hit 10.1% this week. Forecasters believe it will hit 13% before subsiding. However, all along the way those forecasters have been forced to revise their expectations upwards.
Just how much money did Saudi Aramco make this quarter?
As we watch inflation in the labour market, hourly earnings has the highest correlation to corporate earnings.
Ships are once again allowed to export grain from Ukraine but as you can see millions of tonnes have not made it to global markets.
Even with the US hollowing out their manufacturing base over the past decades , the US is least reliant on other trade partners compared to other high income countries.
