Inflation surprised on the downside in Spain, which is comforting news for the ECB. Inflation will prove to be of secondary relevance in coming months.

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Inflation surprised on the downside in Spain, which is comforting news for the ECB. Inflation will prove to be of secondary relevance in coming months.
It is quite before the storm in the global economy, and this may allow a short-term window of hopetism to arise again.
Another day, another direction for rates. Banks are driving the show and the underlying question remains. Is this a true banking crisis or is it a tempest in a teapot? As true macro investors, we prefer to take a step back from the daily noise and watch the underlying trends. Amidst a renewed hawkish repricing yesterday the M2/M3 money growth measures were released in the Euro area. We have never seen the kind of destruction of money (and hence deposits) in the history of the Euro zone and if we look at similar data in the US, it looks even worse. The underlying quarterly growth numbers of money in Europe and the US are running at historically destructive levels. This is the true underlying reason for the deposit flight/destruction and the monetary policy is simply too tight by now. Chart 1: The quarterly pace of negative money growth in Europe is historic The trend remains very uniform across the West. Money growth is falling of a cliff from a sequential perspective and the banking crisis is likely to accelerate the trend as M2 growth is linked to the risk appetite of credit departments of banks. When various emergency facilities at the Fed (and other central banks) are getting maxed out, it is not a signal that banks are willing to add to the risk profile, rater the contrary. We know this drill and it is not reflationary. There is one spot on earth, and basically one spot only, with a […]
European inflation numbers are out this week, while most focus will gather around the weekly numbers from the Fed and Money Market Funds.
Both weekly and daily indicators of deposit flight continued to show signs of money leaving the banking system for money market funds, while banks continue to underperform. Will the Fed come to accept new all-time highs for the balance sheet?
The Fed is semi-cornered in the discussion on deposit flights and decided to neglect it in practice. Issues are likely going to accelerate on the back of the 25-bps hike. The hiking cycle is over.
It is Fed day and the last few days of increasing market stability will allow them to hike interest rates. The question is if Powell will decide to address the root cause of the deposit flight… Fed Funds is too high relative to bank deposit rates.
Calm is temporarily restored while First Republic Bank continues to suffer. Tech and Consumer Discretionary are underperformers when the calm is restored. The world is truly upside down right now.
Another hectic week is in the making and we don’t find risks to be contained yet. The Fed is likely to hike on Wednesday even if markets are screaming that they should rather cut. The first stages of the crisis playbook are playing out. The next will be true pivots from central banks.
Up, down, up, down. Front-end rates are schizophrenic these days and the hiking cycle is close to being over consequently. The banking crisis “complicates communication”.
Goldilocks data keeps coming from the US economy, while the ECB rhetoric hints of the hiking cycle potentially already being over. Here are our take-aways. The steepening will CONTINUE as the cycle is (almost) over.
The US inflation print yesterday would have been a CLEAR 50bp data print, but markets and we remain convinced that the credit event will force the Fed to rethink. The ECB is, on ther other hand, not awake yet.
The market is convincing itself that the hiking cycle is over in the US, but will anyone care about inflation today? Long gone are the calls for higher(er) for longer(er) and the curve is steepening fast.
The hiking cycle seems over, even if inflation is running too hot. Lower rates are likely needed to resteepen the curve and tempt money back into deposits from bills and money market funds. The Fed is caught between a rock and hard place.
Will Kuroda-san rock the boat on his last meeting in charge of the BoJ? And will Janice Eberly prove to be a dovish VP of the Fed? 3% inflation targets soon to be discussed.
Powell is back as the hawk we knew from 2022, but the extreme data-dependency is volatility creating by design. One soft inflation and/or job report and we will back at where we were just a few weeks ago. Buckle up.
RBA echoed other major central banks by clearly stating that inflation has peaked. This is a potential interesting harbinger ahead of Powell’s appearance in the US congress
The Chinese politburo aims for 5% annual growth in 2023. This leaves room for an upside surprise from China for once. We have a big week ahead of us. Find our expectations here.
Bostic from the FOMC surprisingly hinted of only 25bp steps and a pause this summer. This is a surprise and something that will be tested unless price pressures fade fast this spring.
The ISM Manufacturing was the worst possible cocktail on the surface but remember the time-lags from the survey to actual activity. Inflation is likely to rebound later in the year, but not for now.
The Chinese manufacturing sector rebounded in February and the composite PMI is booming, which will be a new booster for China sensitive equities and commodities. Rates will likely continue up alongside it.
Spanish and French inflation numbers are out, which will guide Euro zone inflation numbers later this week. Markets are currently rebounding, but not in an impressive way.
Watch ISM Manufacturing and European inflation this week. Another test of the January/February narrative of higher activity and higher prices.
We have been up early to watch the hearings in Japan, but very little new was brought to the table. Here are the take-aways from the hearings in Japan.
A few participants favoured a 50 bp hike at the last meeting, but the overwhelming majority backs a strategy where a slowing pace allows the Fed to gauge the extent of hikes needed. Forget about 50bps in March.
A big bounce in ISM Services and suddenly the higher for longer spills-over to equities. The current rebound has higher rates tattooed all over it but is it sensible?
Will the cyclical upswing be confirmed in European PMIs and German IFO numbers? Markets clearly lean that way, while bets are being removed on a more hawkish BoJ.
PBoC injected almost “war-like” liquidity on Friday. Is this another sign of Chinese authorities really trying to pump liquidity into the system? This week we watch RBNZ, PCE prices and Japanese inflation.
Mester and Bullard have brought back the 50bp chatter and the market is now slowly opening the door for more than 25bps in March. We continue to find the bar to be VERY high for a 50bp hike and no important members have so far mentioned such a hike.
Equity markets keep performing despite a front-end repricing of interest rates. If the consumer is really doing better than feared, then we are in for a different type of inflation compared to 2021/2022. And this time it is not as bad..