Stocks in the United States have fallen sharply in recent days, despite the fact that the S&P 500 reached a new all-time closing high only last week. As a result of the prospect of accelerated tapering, investors' appetite for assets that do not generate significant revenue or return capital to shareholders has been dampened. Disruptive, growth stocks in the technology sector have been hit the hardest. Cryptocurrency is included since Bitcoin and Ethereum have officially entered bear markets, according to the most recent data (down over -20 percent from their all-time highs).
The demand for gold has been limited despite the fact that inflation rates in the United States have reached their highest level since the early 1980s. This is due to rising US real yields – 10-year real yields have risen by 20 basis points in the last month – which have taken the luster off precious metals. Expectations of rate hikes have been pushed forward as the Federal Reserve signals a more aggressive stance, which has dampened longer-term growth and inflation expectations. The markets continue to assume that inflation is a temporary phenomenon, despite the fact that Federal Reserve Chair Jerome Powell has formally removed the concept from their vocabulary. In this week's episode of MKT Call: Macro, we examined how the data surrounding the COVID-19 omicron variant is proving to be less alarming for global financial markets than the first reaction at the end of November (formerly The Macro Setup). When previously stated, as viruses grow more transmissible, they become less fatal, meaning that the health consequences of omicron may be limited. Lockdowns, on the other hand, might be far more detrimental to the global economy as a result of governments' reactions.
On the other hand, the development of the term "transitory" in both the Federal Reserve and the United States Treasury is still being digested by market players in other parts of the world. In the aftermath of Fed Chair Jerome Powell's speech last Tuesday, however, it looks that calmer heads have prevailed; this shift in tone is nothing new if you've been paying attention to Fed leaders' words over the previous few months.
Considering how well the United States economy is performing (the Atlanta Fed GDPNow growth tracker for 4Q'21 is a scorching 8.6% real annualized growth rate), the possibility that the Federal Reserve will accelerate the rate of tapering next week isn't surprising. The rates markets have been somewhat "smooth as it went" aside from the hot inflation indicators, discounting the probability of 150 basis point rate rises until the end of 2023 for several weeks.
The demand for gold has been limited despite the fact that inflation rates in the United States have reached their highest level since the early 1980s. This is due to rising US real yields – 10-year real yields have risen by 20 basis points in the last month – which have taken the luster off precious metals. Expectations of rate hikes have been pushed forward as the Federal Reserve signals a more aggressive stance, which has dampened longer-term growth and inflation expectations. The markets continue to assume that inflation is a temporary phenomenon, despite the fact that Federal Reserve Chair Jerome Powell has formally removed the concept from their vocabulary. In this week's episode of MKT Call: Macro, we examined how the data surrounding the COVID-19 omicron variant is proving to be less alarming for global financial markets than the first reaction at the end of November (formerly The Macro Setup). When previously stated, as viruses grow more transmissible, they become less fatal, meaning that the health consequences of omicron may be limited. Lockdowns, on the other hand, might be far more detrimental to the global economy as a result of governments' reactions.
On the other hand, the development of the term "transitory" in both the Federal Reserve and the United States Treasury is still being digested by market players in other parts of the world. In the aftermath of Fed Chair Jerome Powell's speech last Tuesday, however, it looks that calmer heads have prevailed; this shift in tone is nothing new if you've been paying attention to Fed leaders' words over the previous few months.
Considering how well the United States economy is performing (the Atlanta Fed GDPNow growth tracker for 4Q'21 is a scorching 8.6% real annualized growth rate), the possibility that the Federal Reserve will accelerate the rate of tapering next week isn't surprising. The rates markets have been somewhat "smooth as it went" aside from the hot inflation indicators, discounting the probability of 150 basis point rate rises until the end of 2023 for several weeks.
