MI2 Partners
Sep 27, 2024
“I think it was the right decision, and I think it should send a signal that we, that we’re committed to coming up with a good outcome here”
There is no verse in scripture that says “blessed be the dovish, for they shall fatten the sacred bull”. More’s the pity, because it would have been apt. James Macintosh seems to have noticed the same, but framed it slightly differently. Nothing says I love you to asset markets more than Fed rate cuts: the original PCA factor. And to be fair, the admiration appears to be mutual: Powell loves markets and markets love Powell. It’s nice to get positive feedback and it’s not like JP had to drag everyone screaming and kicking.
Powell recalibrated everyone’s Fed “reaction function”, and markets repriced to reflect it. Gold hit a new ATH (gratifying), as did S&P and Dow, and EM took off as the dollar stumbled. But while the prevailing direction for risk assets is higher, long-end bonds stalled, suggesting concerns about the Fed’s inflation-fighting credentials. As BobUnlimited put it, Fed policy could be described as “Over Easy”.
Of course, Powell was not the only factor driving risk higher. It must have helped that China signalled a sweeping stimulus package (and its intention to tap bond markets to pay for some of it). Naturally, this boosted Chinese stocks, which look very cheap compared to global stocks and have some prominent supporters, although cynics will say when they tell you they like them they are probably sellers.
Of course, there are always people who insist on looking at the downside of anything. In the case of the US economy, this means the Labour market, and whether we are on the brink of a dramatic deterioration in employment, which would vindicate Powell’s decisiveness. Anna Wong suggested a 70% chance the US economy was headed to recession, and Parker Ross gave an excellent summary of why many think unemployment is on the brink of surging higher. Consider @BobEUnlimited one of the optimists. But if Bob is wrong, there is every chance Powell will do what it takes to ensure the happiest ending he can. That’s what he told us and that’s why markets are pricing what they price. What could possibly go wrong?
https://www.gocomics.com/calvinandhobbes/1986/12/20
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