Analysis: Markets to central bankers: we don’t believe you |
LONDON, Feb 2 (Reuters) – Central Bank policy announcements, once seen as a rulebook for how markets should behave, no longer resonate with traders.
Take the Federal Reserve’s rate action on Wednesday. Central bank inflation the main reason for continuing to fight with funds increasing their interest by 25 points 20Raised to the highest level since 07.
However, the S&P 500 (.SPX) hit a five-month high as traders focused intently on the idea that the world’s most influential central bank will soon change course.
Government bond markets continued to increase in price due to interest rate cuts until the end of the year due to changes in the economic cycle.
in Europe Europe The central bank on Thursday introduced a higher rate hike of 50 bps and promised more for March and beyond.
Growth was also observed in Euro zone markets. Stoxx 600 stock index April reached its highest level since (.STOXX), Germany 10 annual bond yields fell 23 bps, the biggest decline in almost a year as their prices rose. Italian yields, ECB’s 2020marked its biggest one-day decline since emergency stimulus during the COVID-19 crisis.
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“The markets are saying, ‘You can say whatever you want now, we know you’re going to change your tune,'” said Salman Ahmed, global head of macro and strategic asset allocation at Fidelity International.
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Investors said anything central banks are promising now means less to markets driven by the belief that inflation has peaked. Markets also expect the lagged impact of interest rate hikes to slow the global economy and force both rate hikes to be withdrawn later in the year.
Traders expect the Fed to cut interest rates at least twice by the end of the year. While the ECB sounded hawkish, markets cut expectations for its key interest rate to reach 3.25% on Thursday from 3.4% earlier.
“I just don’t see us cutting interest rates this year,” Fed Chairman Jerome Powell said on Wednesday. “We have more ground to cover and we’re not done,” ECB President Christine Lagarde said.
Almost, 10“What you’re seeing here is the market saying, OK, the Fed is going to hike, but eventually it’s going to have to come back at some point,” said Jeffrey Sherman, deputy CIO at DoubleLine Capital, which manages $0. billion assets implies a weakening of inflation.
USAmain in inflation from last year’s 40-year high to 6.5%. In the eurozone, which is facing an energy crisis related to Russia’s war in Ukraine inflation it fell to at least 8.5% last month.
Ten-year Treasury yields are down 50 bps so far this year to near 3.3%, up 236 bps last year.
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Central banks have good reason to talk tough. Buoyant markets risk undermining their tightening efforts.
“They’ve continued to sound quite hawkish but the market doesn’t really believe them,” said Sebastian Mackay, a very active fund manager at Invesco.
“(Central bank) in terms of the impact of hawkishness on markets, he added, “it has softened significantly.”
Markets are also pricing in a scenario in which major economies cool enough to prompt central banks to exit their growth spurts without spiraling into a dire recession.
Meanwhile, this week’s central bank price action after the meetings continued the cross-asset rally that has been going on for a month.
The S&P 500 and Europe’s Stoxx are each up more than 8% since the start of the year. USA The Bank of America index of Treasuries (.MERG0Q0) rose nearly 3%.
Big after the Bank of England on Thursday signaled a turnaround in its fight against high inflation after raising interest rates again Britain gold income has also decreased.
Risky assets like government bonds, which investors use to hedge their portfolios against economic downturns, are not typically expected to rise. Still, markets were able to price in “the best of all worlds,” says Joseph Little, chief global strategist at HSBC’s asset management division.
Treasury bonds, whose coupon payments are eroded by inflation in real terms, rallied in anticipation of a shock to energy prices and supply chain problems caused by the COVID shutdown to “get better,” Little said. Stocks and corporate bonds predicted that easing inflation would “feed into corporate profits.”
Some investors believed that the markets were also underestimating the full impact of monetary tightening, which was working with a time lag.
“This fixation was not made on the planet Mars. It was done on planet Earth, and someone has to pay for this tightening,” Fidelity’s Ahmed said.
Reporting by Naomi Rovnik, Editing by Dhara Ranasinghe, Frances Currie
Our standards: Thomson Reuters Trust Principles.
2023-02-02 23:06:25
Source – reuters
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