On Wednesday we got Chairman Powell a de-cloaked hawk and he treaded carefully. He’s like a hawk on barbed wire, he knows he’ll get cut if he swings too far. For the first time he admitted that we are in an inflationary environment and that commodity inflation is declining rapidly.
Powell tried to temper dovish sentiment by saying there was “more work to do” and the dot plot could move higher or lower in the next meeting. Or less? Really nice. In my view, the most important quote from the press conference was, “You saw what the Bank of Canada did.”
CNBC
This morning I joined Maria Catarina on CNBC “Closing Bell” Indonesia to discuss the latest Fed moves and implications. Thanks to Fitria Angreni and Maria for having me:
A few key points from my show notes before the segment:
Is inflation going back to 2%?
– Recent year-over-year changes in core PCE 4.4% This is the last hike 25bps Took a hike Fed funds rate above this level – which was historically necessary Inflation is crushed.
–The Fed is now justified If they want to pause. Interest expense has increased from $400B to $1T Due to rate hike. Can’t afford it 120% Debt/GDP. must be inflated away By running inflation at 3%+.
-5 years. Inflation has fallen to breakevens 2.29% from 3.59% Includes inflation expectations (which drive behavior) last March.
-For the first time he admitted that we were a Inflationary environment And commodity inflation is coming down fast.
“We can now say that I am thinking for the first time Inflation process has started. We can see it and we see it in the commodity prices so far“
What is the likelihood of the Fed raising interest rates at its next meeting this year?
There is one in the futures market right now 82.7% probability of 25bps and 17.3% chance no hike
will be Data dependent 2 on the job report and inflation numbers.
Powell tried to mix up the dovish sentiment by saying “More work to be done” and The dot plot may go higher or lower at the next meeting.
Jerome Powell states that it is “It is certainly possible” that the Fed will keep its benchmark interest rate below 5%. The Fed’s latest hike brings the federal funds rate into a range 4.50% to 4.75%.
Powell also said he still thinks so The Fed could see inflation return to 2% “without a really significant recessionOr a really significant increase in unemployment.”
What is the effect of the Fed’s decision on the movement of stocks on Wall Street?
-We’ve seen stocks up, the 10-year yield down to 3.4% and the dollar down.
-Markets expect a break or another 25bps in the next meeting. Tightening process/end.
What are today’s investors looking for: safe stocks or bonds?
Buy high-quality companies that have identified:
Alibaba (NYSE: ) – Best Idea. Buy at 2014 prices. The government is focused on consumption.
Is gold still a safe haven or do investors tend to hold their funds in cash?
Buy productive companies to hedge against inflation. A non-productive asset.
How attractive is Indonesia’s financial market? Southeast Asia’s largest financial market, with inflation under control after falling below USD100/dollar.
Good Demographics/Strong Balance Sheet. 3rd largest democracy. Debt/GDP 41%.
How do you see the strength of the rupiah and other countries in the Asian region among the still strong indices?
The dollar fell 11%. EEM coins will appreciate.
TVRI World
We covered similar topics with Aline Wiratmaja on Monday. Thanks Alain for having me on TVRI World (Indonesia’s oldest TV station). Not only has Canada stopped hiking, but Indonesia has paused, Malaysia has paused, and the Philippines could be next:
Here were my show notes before the segment:
- World stock markets have gotten off to a good start this year amid a downward trend in inflation in major countries. Do you think the positive trend will continue this year?
-However, the trend will continue Short term consolidation. The S&P is up 6.1%
– Stock market bottoms 6-12 Prior to the month of income (last 6 cycles).
2. The US Federal Reserve is also expected to slow its pace of interest rate hikes this year. Do you think the Fed’s less aggressive interest rate policy will encourage global funds to return to emerging markets?
-Yes. Dollar corrected 11% Since last year’s fall. Emerging markets are congested.
-BofC has closely tracked the US over the past year. Made the final 25bps this week and broke We’ll see if the US follows suit this week or in March.
- Better than expected Q4 GDP, do you think the Fed will manage to reach a soft landing this year? Can we keep the fear of recession at bay?
– Recent year-over-year changes in core PCE 4.4% One more 25bps It will take a hike Fed funds rate above this level – which was historically necessary Inflation is crushed.
–The Fed is now justified 25bps to increment and pause. They have no choice. Interest expense has increased from $400B to $1T Due to rate hike. Can’t afford it 120% Debt/GDP. must be inflated away By running inflation at 3%+.
4. The war in Ukraine shows no signs of ending, and it could get worse this year. Do you think that war will weaken financial markets despite lowering inflation and interest rates?
– I think so Positive surprise Most hope with some kind of end to the war at the earliest in the year Negotiated settlement.
-It is will not This has a detrimental effect on the market as the US has become a major supplier to Europe.
- What opportunities does China’s reopening bring to global markets as well as emerging markets?
– in spite of 28% Off the lows, EEM is still trading at 2007 levels.
-The China CSI 300 just moved into bull market territory today.
-Hang Seng up >50% off October low.
-#1 factor for EEM is dollar weakness due to Fed winding down.
This has happened 4 times since 2000:
+480% from 2002-2007
+189% from 2009-2011
+96% from 2016-2018
+97% from 2020-2021
6. Which countries in Asia do you find more attractive for investment because each country has a different level of economy?
–China The biggest opportunity yet. We looked at what happened in the US with “reimbursement spending/travel” in late 2020-2021. China has the same opportunity in the next few years $2T in additional savings.
– China set 5% GDP target for 2023
–Strong stimulation – Coupled with easy monetary policy now the economy is open.
7. Indonesia’s economic growth is the highest in the world. But its stock market performance doesn’t really reflect its strong economic growth. Can you explain why?
-Indonesia has surpassed 100% from the low of the epidemic.
– Foreign investors choice Freedom of speech and separation of church and state. Recent policies have sent a message to foreign investors that the country is headed in a different direction.
– in spite of favorable population And the growth profile, may change the recent policy Could potentially be a deterrent New foreign investment to go ahead.
8. The Indonesian government will continue to issue bonds to raise funds to finance the state budget. Do you think the downward trend in global interest rates will make Indonesian government bonds more attractive to foreign investors?
– Indonesia has a good credit because of the debt-to-GDP ratio ~41% and the yield in 10 years is ~6.8%. They should have no problem.
Other highlights from the Fed meeting
“If we see inflation coming down more quickly, that will definitely play into our policy,” Powell said.
Powell says it’s ‘certainly possible’ the Fed funds rate stays below 5%:
In response to a question from CNBC’s Steve Liesman, Chairman Jerome Powell said it is “certainly possible” that the Fed will keep its benchmark interest rate below 5%. The Fed’s latest hike brings the federal funds rate from 4.50% to 4.75%.
Powell also said he still thinks the Fed can get inflation down to 2% “without a really significant recession or a really significant increase in unemployment.”
The deflationary process has begun, Powell said
“We can now say, I think for the first time, that the deflationary process has begun. We see that and we see that in commodity prices so far,” Fed Chairman Jerome Powell said at a news conference on Wednesday.
“It’s a good thing that the inactivity we’ve seen so far hasn’t come at the expense of the labor market,” Powell said, but added that the economy was still in the “early stages” of deflation.
Yahoo! financing
On Tuesday I joined Rachelle Akuffo on Yahoo!Finance to discuss semiconductors and China. Thanks to Rachel Akufo, Pamela Granda Taveras and Ivana Freitas for having me here:
Watch Live in HD on Yahoo! financing
Here were my show notes before the segment:
Chip Ban
-October Rules: US chip makers License should be obtained from Commerce Department to export Some chips used in advanced artificial-intelligence calculations and supercomputing For that is required Modern weapon systems.
– The US, the Netherlands and Japan are joining forces to limit sales of high-end advanced chip machinery to China.
Aim: undercutting Beijing’s ambitions to build its own domestic chip capabilities.
– Have focus Lithography machine – which uses light to print patterns on silicon.
-Dutch company ASML (monopoly) is the only company in the world that manufactures Extreme Ultraviolet Lithography (EUV) Machine – The most sophisticated type of lithography Every single advanced processor is a necessary tool for chip manufacturing used in the world today.
The machine costs more than $150MM And the next generation will be $300MM per machine.
–Deep UV LithographyOr DUV, which is one step less advanced than EUV, may also be limited to advancing where Japan comes in (they compete with ASML).
– Joining Japan (Nikon (OTC:) and Tokyo Electron) and the Netherlands (ASML) are the Biden administration’s October bans that banned Chinese companies from buying Advanced chips And Chipmaking equipment without license
– ASML said it was not expected Material effects On financial projections to 2023. 14% 2022 sales from China (old technology).
*** ASML noted that it originally sold “mature“Products from China, and Its most advanced lithography technology was already limited as of 2019.
– Blocking shipments of new equipment to China will not paralyze because China can Still using his existing machine.
– Sanctions won’t completely disrupt China’s chip industry, but they will send a strong signal Allied unity.
Sold in the pit
In early October, the stock market bottomed out. Here’s what we were saying (see CNBC and Yahoo! Finance clips) when all the “big names” in the business told you the market was going to correct another 20% after it had already corrected 25%:
As a reminder:
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3
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Now onto the short-term view for the general market:
In this week’s AAII Sentiment Survey results, the bullish percentage (video explanation) ticked up from 28.4% to 29.9% the previous week. The bearish percentage dropped from 36.7% to 34.6%. Sentiment among retail traders/investors remains weak.
CNN’s “Fear and Greed” rose to 73 this week from 64 last week. Emotions are heating up. You can learn how this indicator is calculated and how it works here: (video explanation)
And finally, the NAAIM (National Association of Active Investment Managers Index) (video explanation) went from 65.07% equity exposure last week to 75.23% this week. Managers began chasing as they came into the year with record cash levels.
This content was originally published on Hedgefundtips.com.
