There is no rate hike on the official agenda. Yes, a free stone for long rates to calm the spirits (of prices, the real economy and the markets, and whatever happens). The war between Iran and Israel is a reality. Sell in May in April.
Countervailing inflation, the winds of war blowing from the Middle East and a selective and critical look at the first balance sheets, those of the big banks, spread the tares. Until March, it didn’t matter. The bull market overwhelmed every objection to the bulls’ pace. The problems are not new. Inflation overflowed in January and repeated in February. The FED did not make any fuss and that being the case, the markets, even less so. The world is a powder keg. But geopolitics is not a matter that keeps Wall Street awake. Always enter through the window. If there is interest, it is momentary. Then he leaves the forum. Whether the mess is resolved or not. It does not matter. Ukraine, for example, has no solution in sight. And the balance sheets, still lean in profitability, are a promise. So it was enough to believe it. Like the FED rate pruning. In those conditions, Wall Street billed, since November, a 25% improvement that swept all 2022 records. And now it worries.
In April moving forward was uphill and falls easily. Consumer inflation was bad in January (+0.3%), February (+0.4%) and also in March (+0.4%). It doubled the registrations from October to December. Disinflation continues, the FED explains educationally, but it is not without shocks. There is no rate hike on the official agenda. Yes, a free stone for long rates to calm the spirits (of prices, the real economy and the markets, and whatever happens). In February, the ten-year rate climbed back above 4%. This last week, it exceeded 4.50%. In October it had to get closer to 5% to complete the task. The FED has been sitting on its hands since July. And it will continue like this. Its lowering of rates will have to wait until inflation subsides, or the economy weakens and the central bank, as when it pivoted in December, wants to prevent instead of cure. It will happen, but it is not urgent.
It was enough to open a crack in the doubt for resentments to pour in. Iran’s attack on Israel encourages the specter of a lethal domino of unpredictable reactions. The power board would fly into the air. A barrel of crude oil is around 90 dollars. Will Netanyahu achieve what Putin couldn’t? The apocalypse, no. But it can shake up the short term. And inflation is already coming. What can we say about the banks’ balance sheets? They were eagerly awaited last week after the robust employment report and, before it was released, courtesy of the inflation setback, they had already silenced the hubbub. JPMorgan Chase brought to the fore a hand of lime and another of sand. Profits grew 6%, more than expected. At the same time, the cost of funding rose and the interest margin shrank. The stock market listed lime immediately. The stock plunged 6.5%. Bad debut for the banks, bad debut of the balance sheet season. And a bad feeling for such a slippery April after five months in full sun. How serious is all this? The serious thing is being climbed to the top of the hill. In other words, the law of gravity and the feeling of vertigo, now that the situation forces us to also look down.
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Wall Street: has the correction begun?
Has the correction started? She started the crouch and flies over a stronger retraction. The furious ambition of investors changed to a neutral position, according to sentiment indices. The fear is not in the prices yet. April started with four wheels in decline and rebounded with the employment report. And this week it fell again, although on Thursday the Stock Market counterattacked. And the Nasdaq Combined set a new record. It was short-lived: all signs of liveliness were crushed on Friday. The S&P 500 fell to its lowest in the last month, although it has not yet broken the short average of 50 wheels. It lost just 2.5% from the highs. Battle on the eve of a correction. He could lose as much without causing a big fuss. And he’s not dead if he fights. As wholesale prices calm down, the measure of inflation tracked by the FED, the consumption deflator, will improve the final picture for March. Thus, and with a torrent of balances up his sleeve, the last word has not been said. But the burden of proof was reversed.. Cryptocurrencies, the canary in the coal mine, have already collapsed. The war between Iran and Israel is a reality. April brought forward the Sell in May. The singed will have to be convinced that this is a purchasing opportunity. It will also happen but it may take time.
Source: Ambito
