📈 Macro-News round-up
🇺🇸 US:
Yesterday’s summary, following the Fed’s reports and Jerome Powell’s commentary, could be translated into the following: optimism. More economic growth is expected, lower unemployment rate reaction, a lower interest rate for next year (which implies this year’s rate cut as a given) and finally, more unanimity in its decision making, with fewer board members opposing it.
📉 Of the 19 Fed policymakers, nine anticipate three quarter-point rate decreases this year, and nine anticipate two or fewer. In December, five pencilled in greater cutbacks than the median; only one did so. The median of their predictions indicates that policymakers expect a policy rate of 3.9% by the end of 2025, which implies three further quarter-point reductions in next year’s rate. The median policymaker estimated a 3.6% rate by the year 2025 in December.
📊 Policymakers revised up their estimates for U.S. economic growth this year to 2.1% from 1.4% in their December projections, and they now anticipate 2.0% GDP growth next year instead of 1.8%. They predict that the unemployment rate, which increased to 3.9% last month, will reach 4.0% by year’s end from 4.1% in December. By 2025, they anticipate it will have reached 4.1%.
💹 All markets have adjusted in line with these statements: The dollar index fell sharply, losing all the progress made over the last few sessions. EURUSD rallied sharply again and approached the 1.0950 area. US bond yields cooled, with the 2-year bond falling from 4.75% to the 4.50% area, and the gold market strengthened to over $2200 an ounce, a new all-time high. The stock markets, for their part, celebrated the news accordingly, and the SP500 futures again reached a new all-time high, currently trading above 5300 points.
🤔 My conclusion after this is as follows: The Fed has plenty of data to take a hawkish position. Unemployment rate below 4%, growth last Q4 23 at 3.2% (enviable for Europe) and persistent inflation in the range of 3% since summer 2023. If the rate cut is going ahead, it is not because the data is asking for it. Perhaps necessary for the global economy (Chinese stocks are recovering *below), or to cycle the stock markets once again, and leave everything pretty for the elections. The Bidenomics done by the Fed.
🇬🇧 UK:
The next central bank move comes from Bank of England. After the fastest tightening cycle in decades, the Bank of England is expected to maintain interest rates at a 16-year-high, providing more time for inflationary pressures to abate before they loosen. At the meeting in February, Governor Andrew Bailey hinted at the possibility of policy relaxing later this year, although he has been less specific about when the easing might start than the US Federal Reserve and the European Central Bank. The markets bet that the first cut will appear in August, and that there will be at least one more before the year is out.
💷 At the moment, the discrepancy between the Fed and the BoE is giving oxygen to the GBPUSD cable, which is rising again. It has reached the 1.28 level in the last few hours and is now retreating gently.
🇨🇳 China:
Chinese stock markets also seem to have received the Fed’s speech positively. The Hong Kong HSI has managed to rise above its 200-session average to over 16,000 points and the Shanghai SSE is above 3050 points. These levels have been lost since last December.
🌍 Geopolitics:
Ukraine attacked the Russian border town of Belgorod on the day of the Russian elections, when there was the largest influx of civilians, causing not only disruption of the electoral process, but also civilian casualties and injuries. Meanwhile, in the early hours of this morning, there was a massive Russian attack on the Ukrainian capital, Kiev.
🛡️ In the light of the conflict in Ukraine, NATO is fortifying its eastern flank by enlarging its military installation in Constanta, which is located not far from the Ukrainian portion of the Black Sea, as the Romanian press has reported. Given the extensions described in the Romanian press, this base would be the most important NATO base in the vicinity of Ukraine.
🕊️ Finally, the US is pressing Israel to work on alternatives to the occupation of Rafah. After vetoing earlier resolutions, the US presses the UN Security Council for a quick ceasefire.
