Wall Street hides behind Powell’s patience to attack and set new records

Wall Street hides behind Powell’s patience to attack and set new records

Only reality and the risk of a head-on collision will be able to force the head of the FED to change course. But they will have to be larger deviations than those we already saw.


There was no Sell in May after the 5% setback in April. The Stock Market took its revenge. With alacrity, May returned what was lost in the tumult. And during the week he enabled new records without objecting to their processing. Never better said, a slip is not a fall. The Dow Jones Industrial broke the 40 thousand point mark. The S&P 500 surpassed 5300. Before them, the Nasdaq was the first to break the mold. The bull market attacks on all fronts. Intact, although this time encouraged by Powell’s FED. He upholds borrowed convictions, which he took from the official discourse to remove the feeling of vertigo. The rebellion of inflation in the first quarter made noise. But, the FED is a confessed friend. Its president repeated pari passu, month after month, that the central bank will be nourished by patience, that monetary policy is restrictive, and that its effects must be allowed to decant.

There is no need to raise rates, just keep them where they are for longer. The rate cut, projected to debut this year, was put in the freezer until prices calm down. However, it will be at hand when deciding the next move. Instead, a rise, the big boss said once again, is “highly unlikely.” Powell is confident that inflation will settle, although, he acknowledged this week, he is no longer as confident as before. At the same time, funds that invest in stocks received subscriptions of more than $12 billion, their largest net inflow since early April. The unspoken mandate is to leave doubts aside and navigate with the flow.

Wall Street wanted to know April’s retail inflation before hitting new highs. Just in case. Although he already knew, the day before, that an unforeseen 0.5% increase in wholesale prices had not altered Powell’s good disposition. Consumer inflation showed a variation of 0.3% (precisely: 0.29%). It is a high number, but lower than expected (0.4%) and, above all, than what he could have feared. For example, export prices also rose 0.5%. And imported ones, 0.9%.

If you delve into the retail detail and notice that the core inflation, the trimmed mean and the median inflation, all also coincided in the register of 0.3%, It is the best report of the year (almost a carbon copy of the December reading). It is a point in favor of amassing patience. And the same is true of the subsequent evidence of the slowdown in retail sales and industrial production in April, which suggests a parallel moderation in real activity. In the meantime, retail inflation for the last month annualized and for the last twelve months is exactly the same: 3.6%. The average for the last three months is 4.1%. And that of the last six indicates 4%. After the exam, the recommendation is to continue participating. His approval requires another note, but there is no drama as long as Powell enables recoveries.

The FED’s patience does not run out

Nothing happened here. It is the patience of the FED that does not run out, more than any indication that the setbacks are overcome, the reason that explains Wall Street’s impatience to extend the rally without giving itself a break. From the sharp sales of April, we thus moved on to a May that is already clearly overbought. Note that the FED last raised its rates in July. But, last year, in the third quarter, the economy overheated and sowed doubts like those of now, and long rates did the repair work (because even then the central bank preferred to stay on the sidelines). And it was just as hard.

The current novelty is that Powell explicitly freed the long rates from carrying out that heavy task, which they had already started on their own. Softening the policy of reducing Treasury bonds in the portfolio – the “QT tapering” – was the coded signal to the markets. Let’s understand the message. The authority does not want outbursts with liquidity. Short rates are not touched. Neither does the wink of the dot map that warns of the future turn downwards. And, with that information, long rates canceled the rise and lost more than a quarter of a point. Thus, the FED is the friend of the people, the partner of all. Of stocks and bonds (and commodities, currencies and cryptocurrencies). If Powell weren’t so explicit and tenacious, no one would believe it. Of course, there are other positions within the entity, and we will find out about the discrepancies by reading the minutes. But where the captain rules…Only reality and the risk of a head-on collision can force him to change course. But they will have to be larger deviations than those we already saw.

Source: Ambito

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