ECB QT continues. ECB balance sheet back <€7tn, shrank by €5.3bn to €6,996bn, lowest since Jan2021
Total assets now equal to 50% of Eurozone GDP vs Fed's 28% & BoJ's 128%. And Lagarde has warned that the timeline for ending PEPP reinvestments and so QT could be accelerated. Source: HolgerZ, Bloomberg
So the FED is expected to pivot next year, maybe as soon as March
Is a pivot good for equity markets? Well, history shows that the months that follow the pivot are not the best ones for stocks... maybe this time will be different... Source: Phoenix Capital
Futures are now showing a ~45% chance that FED rate CUTS begin as soon as March 2024
There's also a growing (but small) chance that rate cuts begin in January 2024, at 4%. Prior to the most recent CPI inflation data, the base case showed rate cuts beginning in June 2024. There was also a 50% chance of another rate HIKE in 2024. This has been a quick turnaround... Source: The Kobeissi Letter
Since the Fed started raising rates in March 2022, default rates have gone from 1% to 5%+
Source: Apollo, TME
SUMMARY OF FED MEETING MINUTES (11/21/23):
1. All Fed Members agree to “proceed carefully” 2. Fed sees rates “remaining restrictive for some time” 3. Fed sees upside risks to inflation 4. Fed sees downside risks to growth 5. Meeting by meeting approach to resume It's amazing how US markets keep pricing cuts. When the Minutes reiterate, yet again, that while the Fed are cautious they still have a tightening bias.
Ahead of Fed minutes... The market is now pricing in a 0% probability of a rate hike in December and rate cuts starting in May 2024
Source: Charlie Bilello
Fed monetary policy tightening (+525 basis points of interest rates hike + $1.15 Trillion of Fed balance sheet reduction) since 2022 has been quite brutal
2023 has been a miracle so far with headline inflation declining to 3% WITHOUT a recession and no increase in unemployment rate. But can it last? What could be the lagged effects of such a tightening? (chart courtesy of Tavi Costa)
central banks have become dominant holders
Source: Michel A.Arouet
