The Nasdaq 100 fell 13% in April, the biggest monthly decline since 2008. 88% of all Aprils were up and most people didn’t want anything short in April.
To put it in perspective: the Nasdaq 100 fell 13% in April, the biggest monthly drop since 2008. pic.twitter.com/neVl0wJGlT
— Holger Zschaepitz (@Schuldensuehner) April 29, 2022
United States: the position of the monetary arrangement in the air after the unfortunate reading of the GDP
After the unexpectedly negative GDP print for the main quarter, all eyes will be on the Federal Reserve to check whether this result is in a more cautious view from a financial setup perspective. We question this given that it was generally a transitory trade and stocks led the move lower and that absolutely does not change the view of a 50 bps rate hike on May 4, as the expansion hits 40-year highs and the unemployment rate is below 4%. Either way, it could help discuss possible 75 basis point rate hikes in June and July, with the Fed seeming more reluctant to look directly at those prospects. We expect the Fed to return to 50bp rate hikes in June and July before moving to 25bp as quantitative fixing finds a viable pace. We see the Fed support rate peaking at 3% in mid-2023, although the risks are tilting for the arrange rate to be raised all the more quickly.
We will also be looking for the Fed to formally signal the quantitative fixing. Minutes from the March FOMC meeting showed that “all members” wanted to declare “initiation of accounting report spillover at imminent rally.” Given the multiplication in the size of the monetary record since the last round of quantitative fixing in 2017-2019, this would happen at a “faster pace” than then. “Members broadly agreed that monthly coverages of about $60 billion for Treasury protections and about $35 billion for the MBS organization would likely be appropriate” compared to the total runoff of $50 billion. dollars observed last time. It looks like a “gradually relaxed” deployment cap on developing resources that could last at least three months depending on the economic situation. Whenever there is not a sufficient number of treasuries or MBS in development, the treasuries could be clawed back to make up any shortfall. We expect it to start at $50 billion, cleared to flow all previous months, to reach $95 billion by September.
There are also a few major news releases within a week, including the April jobs report. Organizations are still trying to recruit and it is the lack of accessible/suitable labor that is holding back business development. As a result, benefits should continue to be higher, with the unemployment rate remaining at 3.6%. We will also carefully monitor reports from the assembly and administration of the ISM. Fair results here would reinforce the idea that the economy will grow going forward in Q2, therefore keeping the Federal Reserve in approach-fixing mode.
—Charlie Bilello (@charliebilello) April 29, 2022
Bank of England braces for another rate hike combined with major guesswork updates
The Bank of England has climbed several times up to this point and a fourth hike next Thursday looks like a near conviction. Still, despite talk of a more aggressive 50 basis point move, we suspect that’s overkill. Chief Representative Andrew Bailey recently said the Bank was taking a “narrow path” between development and expansion and suggested the Bank was fine with taking a more staggered repair strategy. New gauges due next week will likely show that this development expansion trade-off has just amplified over the past few weeks. Clearly, the BoE enjoys a slight advantage over another national bank in that it now has some climbs added to its repertoire.
It will also be interesting to see if any panel members join Jon Cunliffe, who last month was the only voter for no rate adjustment. More likely though, we’ll have another 8-1 vote for the climb.
To put it bluntly, we expect Thursday’s rate hike to be followed by another in June, but from then on we suspect policymakers will be pressured to halt – or at least delay – the speed of rate increases. This suggests that markets, which typically anticipate six more bulls this year, are likely to misjudge the degree of fixation needed.