Short Lived
In this buzz: Some thoughts on the post-FOCM events and a bit more…
In the red:
We barely hit ‘send’ on our post-FOMC post when stocks did and about face to close sharply lower Wednesday. The Dow lost 500 points and all three major indices lost 1.6% on the day. It seems like the Fed being close to the end of its rate hike campaign isn’t the same as the end of rate hikes.
The assessment:
Equity futures bounced overnight and into the pre-open as trades assess the Fed’s move, the state of the world banking system and the possibility of a U.S. recession. ✳Some economists believe that the banking crisis is doing some of the Fed’s work for it, slowing the economy through tighter household and business credit conditions. Who could have imagined SVB causing the soft landing Jerry Powell is so desperately attempting to engineer?
In other news, the Bank of England delivered a 🔺25 basis point rate hike of its own as it struggles with persistent inflation. The BoE raised rates to 4.24%, the highest level since 2008 after a report showing inflation jumped unexpectedly to a 10.4% annual rate. While the BoE is monitoring the global banking landscape, the U.K has remained isolated from events such as the collapse of SVB and Signature which are seen as isolated incidents, not likely to impact the U.K banking system.
Yield Curve A yield curve is a line that plots interest rates (yields) of bonds having equal credit quality but differing maturity dates. The slope of the yield curve gives an idea of future interest rate changes and economic activity.
There are three main shapes of yield curve:
- normal (upward sloping curve)- is where longer-term bonds have higher yields than short-term ones and points to economic expansion
- inverted (downward sloping) curve points to economic recession
- and flat occurs when anticipated interest rates are steady, or short-term volatility outweighs long term volatility.
source:Investopedia
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