Saturday Hark Back - 4 Mar 2023

Capturing the themes of the week when there’s time to digest them.

What next for The Fed - more to do……. again

The previous week closed with a hot Core PCE number, and the inflation theme continued this week with the ISM manufacturing new prices component showing a further uptick and the flash February inflation data in the EU remaining stubbornly high. The outcome, unsurprisingly, has been an uptick in rate expectations, with Fed funds peak now knocking on 5.50% and European rates at levels last seen over 10 years ago.

As we have little of note out of Europe next week, the US will lead the way in the run-up to the ECB and Fed’s rate meetings later in the month. We have Chair Powell appearing twice with his semi-annual monetary policy report testimonies to The Senate and House whilst the week concludes with the February payrolls report. As I’m sure you will remember, last month’s headline print came in at an eye-watering 517k. The market will take a lead from February’s number looking, in particular, at whether the uptrend in the series continues and/or if there are any significant revisions to the January print. Any signs that the number is “good” will raise the likelihood of the Fed stepping back up to a 50bp hike later in the month. Whatever happens, it looks like being noisy!

I post below some links to some articles and podcasts that dig deeper into the Fed’s inflation policy dilemma. 

Palisades Radio - Julian Brigden - Is the Fed too politicised to kill inflation?

Advisor Perspectives - CPI and PCE : the two measures of inflation and Fed policy

Mishtalk - Is wage growth too high?

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BoE Governor Bailey cost of living speech

The Governor was front and centre this week, almost a year to the day when he told the UK population to exercise restraint when looking for wage increases. Once again, his “blunt” delivery was in play as he continued his general tone of late that it’s “not on our watch” when it comes to whose to blame for the inflationary pressures that have been driving inflation to double figures and beyond in the UK. Some people refer to him as an odious toad, and far from I to opine on such a subject other than to say that I find toads have a certain endearment. Anyway, I post below his speech and a rather good critique of it for your further reading or not, as you please. 

BIS - BoE Bailey's speech 

Not a Yes Man's Economics - Bailey has quite a cheek talking about the cost of living

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Arthur Hayes - because why not

Great piece as ever from Arthur Hayes, this time on oil and its wider influence on the markets. Twenty five minutes well spent!

Arthur Hayes - Curve Ball

 

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