Marketmind: Markets go all in for disinflation

Marketmind: Markets go all in for disinflation


By Wayne Cole

SYDNEY (Reuters) – A look ahead for the day ahead at Wayne Cole’s European and global markets.

pushing back? push back what? The main theme leading up to the Fed announcement was that Chairman Jerome Powell would definitely, totally, absolutely act against the recent rapid easing in market conditions as inflation was still sky high.

Instead, Powell seemed keen to do the opposite. The very first question in the new conference invited him to scold the markets, and he notes that conditions had tightened sharply over the past year.

On another occasion, he says he’s “not particularly concerned” about market prices, and later “I’m not going to try to convince people who have a different outlook” about inflation and politics.

Yes, there were caveats that it was too early to declare victory and the policy needed to be more restrictive. But even then, he was blasé about more “few hikes” and spending more time trying out his new favorite word, “disinflation.”

A PDF search of the conference reveals that disinflation or disinflationary was used 13 times, compared to two at its December event. Certainly service inflation has yet to turn the tide, but he expected to see that “fairly soon”.

For markets, it’s like stealing the last cookie out of the cookie jar, getting caught red-handed, and instead of getting a good spanking, get another cookie with chocolate on it.

So Treasuries naturally rallied, with 10s up 9bps and 2s up 10bps on the conference and a bit more in Asia. The next targets are the Jan lows at 3.321% and 4.04%.

Fed funds celebrated by pricing in further rate cuts, with Fed funds at 4.40% by the end of 2023 and 3.0% by the end of 2024.

The euro jumped to a 10-month high of $1.1034 and could still be higher if ECB chief Christine Lagarde sounds as hawkish as everyone seems to be expecting after today’s monetary policy meeting.

The market is almost fully priced in for a 50 basis point hike and the promise of more to come, although it was notable that Euribor rallied overnight to imply deeper cuts next year.

The ECB will also disclose how it intends to reduce the multi-trillion euro bond portfolio on its balance sheet.

Across the Channel, the Bank of England is also up 50bps today, albeit with some 25bps offside risk.

The following media conference by Governor Andrew Bailey and colleagues is likely to be difficult, assuming they can get to it at all given the strikes.

The IMF and many others are forecasting a recession, but inflation is at 10.5% and wage growth is red hot – good luck squaring the circle.

It’s a massive gains day for Wall Street, and Meta helped overnight by announcing a $40 billion buyback that sent shares 18% higher.

Healthcare companies BristolMeyers-Squibb Co, Eli Lilly and Co and Merck & Co are set to report ahead of Wall Street trading.

The hard-hitting trifecta of Apple Inc,, and Alphabet Inc are after the bell.

Key developments that could impact markets on Thursday:

– BoE interest rate decision at 1200 GMT and ECB at 1315 GMT. BoE Governor Bailey speaks to reporters at 12:30 GMT and ECB President Lagarde at 13:45 GMT.

(Reporting by Wayne Cole; Editing by Stephen Coates)

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