In Macro Limbo, Your Guess Is As Good As Anyone’s
The data calendar in the US is relatively sparse in the new week, which could make for an uninteresting several sessions. As one rates strategy team recently put it, "it’s summer in April."
The docket isn't completely bare. Starts and permits, as well as existing home sales will give market participants an opportunity to assess the extent to which the modest decline in mortgage rates from last year's highs, alongside that spring "FOMO" feeling, are conspiring to reinvigorate housing market ac
The economy is slowing and we will are likely to get a recession. For investors, the question is how much and how much is already discounted?
It seems to me that once the Fed confirms (in the next 60 days) they’ll stop raising rates there’s going to be a surge in equities to “front run” the eventual rate reductions.
That’s an interesting timing challenge.
To be clear, I agree the macro is murky and that a run up could collapse quickly due to a recession or external events – but then you’d be playing the psychology of whether the Fed will cut more or even start QE to “help”.
It seems to me that the single most helpful thing the Fed could do for asset prices and investors is to hold long rates generally around current historically-low levels. And the only way for the Fed to do that is to decisively bring inflation down, and not let mid-single-digit inflation get even more embedded into the economy.
If inflation settles stickily in at 4-5%, what will 10 year UST rates go to? Investors demand at least a couple points of real yield, in the long run. Run stock valuations with risk free at 6-7%, look at the duration impact on bonds, think of mortgages at 9-10%, imagine what will break.
Losing control of inflation and sending the 10 Y UST at 6-7% will be more destructive to asset prices than another 50 bp of FF hikes.