Powell's presser: what the market MISSED!

Everyone Except the Fed
Pausing & Hiking

Starting with the pausers. The simplest one is the Swiss National Bank…

The kind of inflation ‘problem’ most central banks would kill for (1.6%).
The SNB is keeping rates at 1.75% and there’s a good chance that’s the end of it.

Markets didn’t need a second invitation and sold CHF relentlessly. The SNB say they’re ready to intervene in currency markets to keep the Franc supported (if required) down the line.

 📒 What to Note: Don’t expect intervention unless Swiss inflation starts rising again

Bank of England Nailbiter

A tight call that the pausers won 5-4. Said yesterday that they probably shouldn’t “but they’re scared of criticism, so they’ll probably hike anyway”.

A happy surprise. They really don’t need to. As more mortgages roll onto higher rates (an average of 133,000 per month until the end of 2024), those hikes will bite more andGet more.

ING add some more colour to that:

They think the BoE is done barring any major shocks, and we tend to agree.

Norway & Sweden Hike As Expected

No big shocks here. Both hiked by 25bps (0.25%). Both still might hike one more time. Norges Bank signalling another hike in December was unexpected, and analysts remain sceptical…

Turkey hiked by another 5% (500bps) although they’re really following their own path.

Market Reaction
What’s The Market Saying?

Markets don’t talk. They move. Then we overlay our interpretations onto them. Narrative follows price

It’s human nature to want an explanation for everything. We generally HATE uncertainty.

It’s also a really dumb way to look at things. Here’s the proof:

Yep. The market was clearly telling us exactly the same thing as it did the last eight times the Fed had a policy announcement…

It’s not like the days following the meetings really clear anything up either:

Each red line is a Fed meeting. The Fed’s kept hiking and hawking. The S&P 500 largely hasn’t cared. Once the dust settles, markets will do what they were going to do.

Unless there’s a big shock and everyone panics…

Take: Don’t trust the narratives

Powell’s Presser
What the market missed in Powell’s Presser

I LOVE when people miss something in the market.

With the ES down 1.8%, there’s kinda been a view here that everyone has crapped themselves over the ‘soft landing is not our base case’ comment…

But the fact is…

They didn’t hike.

So why are equities down?

Yes, there’s an interpretation there of recession chatter.

But what data is indicating US recession?

There’s a slowdown, sure.

This does not mean recession, however — recession risks are higher, absolutely, but no one has lost their jobs en masse just yet…

And the tech bros are back to bringing their fun coupon shit back like free haircuts and ‘company swag’.

So what has Powell done here?

Well, in my view, he has hiked without increasing the base rate.

I don’t want to make any kind of severe parallels with market stress here, but instantly I thought it was similar to when Draghi gave his ‘whatever it takes’ speech to save the euro in 2012…

Nothing was really done, but just saying something was sufficient.

I’m not wholly optimistic, by the way. I still think unemployment hardens.

It’s just… not really happening right now, so who cares?

The crux: Powell tricked us with a little 10bp hike, simply by talking.

Premium
Dots Or Soft Landing - We Can’t Have Both

Why the dots and the soft landing narrative simply aren’t compatible…