There was a heavy sell-off in US 10 year bonds this week as Fed’s Powell confirmed that the Fed may need to hike by 50bps. Bullard, Daly, & Mester all confirmed that view this week. Remember, the Fed projected 7 more 25bps rate hike this year and with US inflation sitting above 8% the Fed look poised to act aggressively in hiking rates. The main question now is this ‘will the Fed’s policy slow US growth’? If it does then the latest move higher in US stocks is a ‘bear market rally’. Investors should watch carefully for any signs of slowing growth in the US to weigh on stocks and lift gold. This is why some are still asking, is this a policy mistake?
Other key events from the past week
- USD: Fed to hike by 50bps? Mar 22: US10 year yields surged on the expectations that the Fed could hike by 50bps at the next Fed meeting after Powell and a string of Fed speakers hinted at that outcome boosting the USD this week.
- GBP: Inflation rise, Mar 23: UK inflation went over 6% for the headline y/y figure. With the BoE’s latest dovish hike this means that stagflationary worries are likely to mount. This should weigh on the GBP over the medium term.
- CHF: Interest rate meeting? Mar 24: The SNB kept rates unchanged at -0.75% and reminded markets the CHF is ‘highly valued’ and that it would intervene as necessary. The SNB upgraded inflation expectations to 2.1% for 2022 from 1.0% prior. However, EURCHF is still likely to be pressured in the near term.
Key events for the coming week
- CAD: GDP, Mar 31: The BoC are at an interesting point with oil prices highly supportive for the CAD. Will next week’s GDP data confirm or question the BoC’s latest policy stance? See here for the last rate meeting.
- Seasonal trades: USDCAD weakness: The USDCAD has a very weak seasonal period coming up. Will it see a move lower next week on surging oil prices? Contact your account manager for a free trial with Seasonax to find amazing seasonal patterns in thousands of commodities, currencies, & stocks!
- S&P500: US employment & growth, Apr 01: The Fed has a very hawkish stance and some analysts are thinking the Fed may have made a policy mistake. Will US employment data next week show signs of slowing growth and weakening stocks?