📝10/07 ~ 10/13 This week’s key information updates:
Affected by the comments of Federal Reserve officials, market expectations for a sharp interest rate cut this year have begun to cool down. The appointment of a new Japanese Prime Minister and the war in the Middle East have put risk assets under pressure again. The impact of the war is short-term (unless it expands again). The new Japanese Prime Minister has also expressed support for the policy. Normalization, leaving only the need for adjustment in the stock market may create additional downward pressure, which is what we need to pay attention to. Crypto bulls only need east wind. I think it will start to strengthen at the end of October, and the bulls are coming soon! 🐂
Since October, Fed officials and Powell have followed each other and maintained the same rhetoric. You can see the key points I compiled from Figure 1. Basically, officials agree that the current overall economic situation in the United States is healthy and only needs to maintain the current growth. In other words, just take your time. Unless the data (inflation/unemployment) are not as good as expected, the current policy path needs to be changed. Simply put, the U.S. economy is stable, and now we must pay more attention to every data change! Then wait for the election.
Institutional traders have also lowered their expectations for an interest rate cut during the year (Figure 2) since the officials’ talk. Most currently believe that the rate will be cut by up to 50 basis points this year. Let’s review what we shared in the past few weeks (Figure 3). After the interest rate cut, it is actually close to the neutral interest rate level. The effective interest rate in mid-September was about 4.83% vs. the current benchmark interest rate range of 4.75~5%. As long as inflation continues If it declines steadily and the economy is in good condition (the unemployment rate does not worsen and productivity does not decline), then it is OK for the Fed to lower interest rates in line with the trend!
Today I shared my views on the market on Twitter. You can take a look at https://x.com/kenjisrealm/status/1843565537349251505. The actions of the Bank of Japan in mid-to-late October are also worthy of attention. I personally think that the Bank of Japan’s meeting at the end of the month This will be a turning point. If the Bank of Japan strengthens its expectation that interest rates may be raised again this year, the short-term liquidity contraction will be reversed. In addition, the US stock Q3 report was also released during that period.
The key events this week are the Fed meeting minutes and CPI and PPI data on Thursday and Friday.
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