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There is a natural cycle between feeling, talking and doing – so its logical that markets feel different today and a bit confused ahead of the ECB their words don’t match their actions. So should investors judge a central banker not by what they say but what they do? That is the end of forward guidance as a policy tool and its in doubt today. The FOMC outcome was clearly hawkish – adding in another 25bps hike to 2018 from their projections, lifting growth and inflation outlooks and making every meeting ahead “live†with a Powell news conference afterwards. However, the market sees the Fed closer to neutral rates with the next 4-5 hikes being the end and that leaves plenty of room for the ECB, BOJ and others to hike in the next 2 years when the Fed maybe finishing up. So the headlines describe the FOMC hike dovish while most now expect the ECB to have a hawkish hold with the policy on QE guided to end in 4Q this year. The geopolitical risks for trade war escala
tion went higher from the start of Asia – as US prepares to go ahead with Chinese tariffs - adding to the overall negative risk mood with global equities lower. The data overnight added to some of the risk-off as well with Australian jobs weaker even though the unemployment rate dips as participation rate drops. China retail sales were weaker, industrial production off and investment sharply lower as credit crunches and policy mixes shave off some growth. So the PBOC didn’t follow the FOMC rate move and China rates hold as they continue to issue municipal bonds. The CPI final looks in Europe were all unchanged but still over 2% and likely to add to the ECB jitters today while the India WPI jumped to 14-month highs thanks to food/energy squeezes. UK Retail Sales were strong enough to matter but mostly linked to the Royal Wedding, better weather and football finals. One swallow doesn’t make a summer. So the search for solid growth continues into the US with retail sal
es key and the role of gasoline important. So until the ECB is out of the way, we are all fixed at watching words and feeling, hoping for action.
The Morning Track actions
- The Morning Track – Actions by Bob Savagehttp://trackresearch.com/articles/the-morning-track-actions/
There is a natural cycle between feeling, talking and doing – so its logical that markets feel different today and a bit confused ahead of the ECB their words don’t match their actions. So should investors judge a central banker not by what they say but what they do? That is the end of forward guidance as a policy tool and its in doubt today. The FOMC outcome was clearly hawkish – adding in another 25bps hike to 2018 from their projections, lifting growth and inflation outlooks and making every meeting ahead “live†with a Powell news conference afterwards. However, the market sees the Fed closer to neutral rates with the next 4-5 hikes being the end and that leaves plenty of room for the ECB, BOJ and others to hike in the next 2 years when the Fed maybe finishing up. So the headlines describe the FOMC hike dovish while most now expect the ECB to have a hawkish hold with the policy on QE guided to end in 4Q this year. The geopolitical risks for trade war escala
tion went higher from the start of Asia – as US prepares to go ahead with Chinese tariffs - adding to the overall negative risk mood with global equities lower. The data overnight added to some of the risk-off as well with Australian jobs weaker even though the unemployment rate dips as participation rate drops. China retail sales were weaker, industrial production off and investment sharply lower as credit crunches and policy mixes shave off some growth. So the PBOC didn’t follow the FOMC rate move and China rates hold as they continue to issue municipal bonds. The CPI final looks in Europe were all unchanged but still over 2% and likely to add to the ECB jitters today while the India WPI jumped to 14-month highs thanks to food/energy squeezes. UK Retail Sales were strong enough to matter but mostly linked to the Royal Wedding, better weather and football finals. One swallow doesn’t make a summer. So the search for solid growth continues into the US with retail sal
es key and the role of gasoline important. So until the ECB is out of the way, we are all fixed at watching words and feeling, hoping for action.
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Robert Savage
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