The heavy sell-off in US 10 year bonds continued once again this week as Fed’s Brainard suggested that Quantitative Tightening (QT) could take place as soon as next month. This was even faster than the market was expecting with most analysts seeing US QT happening in June. This even more hawkish shift weighed on stocks midweek but boosted the USD and that trend could continue. The RBA took a hawkish hold this week as they, like the Fed, start to express concerns about rising inflation. China’s Service PMI data dropped sharply to 42.0 into contractionary territory which further weighed on global sentiment for stocks.
Other key events from the past week
- AUD: RBA’s hawkish hold, April 04: The RBA made a hawkish hold this week as they recognised inflationary pressures were growing. Note that the labour wage price index is going to be crucial for the RBA’s policy in Mid May if the RBA are to take a move towards hiking interest rates and lift the AUD further.
- China: Caixin Services PMI’s drop, April 06: The rise in Covid cases in China, surge in input costs, and the growing Russian/Ukraine crisis have all led to a sharp drop in service activity. However, is this still the time to be bold on China?
- USD: Fed to prompt a recession? April 06: More hawkish Fed speak this week means that short term interest rate derivative markets now project the Fed hiking to 2.50% from the current rate of 0.375%. If US growth starts to slow watch out for further selling in stocks over the coming weeks.
Key events for the coming week
- USD: Inflation woes? April 12: The Fed is on a path to hike rates aggressively this year due to a surge in inflation. Will next week’s inflation print edge higher again and increase the Fed’s urgency to hike rates? Will that shock stocks?
- Seasonal trades: Apple to advance? Apple stock has a strong period of growth. Will that be supported by their new revenue growth formula?
- NZD: NZD rate statement, Apr 13: Short term interest rate markets are pricing in an 89% chance of a 50 bps rate hike from the RBNZ next week. They are expected to keep hiking. See here for the previous central bank decision from the RBNZ in February.