The Asian session saw some Fed speak and the storyline is starting to be hammered home from Fed officials – “Although there is good and bad, the Fed is not easing soon”.
Federal Reserve governor Christopher Waller emphasized a cautious approach to monetary policy, highlighting the importance of incoming data in determining the timing and extent of future rate cuts. Waller expressed skepticism about the urgency to cut rates, questioning the narrative that slight delays could lead to a recession and noting that the supposed asymmetry in the effects of rate hikes versus cuts lacks empirical support. He argued that, barring a major economic shock, postponing rate cuts for a few months is unlikely to significantly impact the economy in the short term. Waller warned against prematurely easing policy, as doing so could jeopardize recent progress on inflation and pose substantial risks to the economy. Recent data, including January’s CPI report, have underscored the necessity of validating the inflationary progress made in the latter half of 2023 before considering rate reductions. Waller’s stance reflects a broader call for patience and methodical decision-making, supported by the latest economic indicators and inflation data, which suggest a need for vigilance. Despite some signs of economic slowing and the potential challenges posed by commercial real estate and labor market dynamics, Waller remains optimistic about achieving the 2% inflation target without precipitating a recession, underlining that policy decisions are driven by economic considerations rather than political pressures.
Meanwhile, FOMC Governor Lisa Cook advocated for a cautious approach in adjusting monetary policy, emphasizing the need for confidence that inflation is steadily moving towards the 2% target before considering rate cuts. She recognized the evolving balance of risks between acting too early, which could keep inflation high, and acting too late, which could harm the economy. Cook described the current monetary stance as restrictive, suitable for a period where the economy is transitioning towards stable price levels while maintaining growth. She highlighted the importance of sustaining restrictive policies until there’s clear evidence of ongoing and sustainable disinflation. Cook pointed out the recent progress in disinflation, aided by both policy measures and supply-side improvements, but remains vigilant due to the unpredictable nature of the disinflationary process. She is optimistic about inflation aligning with the Fed’s target, supported by slowing inflation in housing and services, and a robust supply-side recovery. Despite strong consumer spending, Cook notes potential challenges from weakening household finances and increased supply volatility, emphasizing a methodical and data-driven approach to future policy decisions.
Earlier toward the end of the US session Fed’s Harker weighed in by highlighting a cautious approach towards adjusting interest rates. He acknowledged the possibility of nearing the point for rate cuts but expressed uncertainty about the timing, emphasizing the importance of data-driven decisions. Harker pointed out recent CPI data indicating uneven progress in the fight against inflation and identified the premature reduction of rates as a significant risk. Rising credit delinquencies and signs of a labor market achieving better balance were noted, alongside the continued strength of the US GDP. Harker stressed the need for greater confidence in inflation’s return to the 2% target, suggesting the Fed is close to achieving its goal but not in a hurry to cut rates. He mentioned that the recent increase in layoffs does not necessarily signal an impending recession and indicated that future Fed actions would rely heavily on incoming economic data. While a rate cut in May is not anticipated, Harker hinted at the possibility of rate adjustments in the second half of the year, contingent upon more conclusive data on inflation trends.
Wall Street Journal’s Timiraos outlined that economist/analysts are realizing that the cuts won’t come until June with Goldman being the latest to push back forecast for the first rate cut to June from May. The market is listening to the Fed comments and with CPI/PPI higher and things like initial jobless claims moving back toward 200K (from around 220K), the data is telling the story too.
As for US stocks, the AI storyline is plowing through the rise in yields, and a more hawkish/less dovish Fed.
In the Asian Pacific market, the AUD is ending as the strongest of the major currencies. The CHF and the USD are the weakest although price action was limited.
In the Asian stock markets, shares opened higher but gave back gains. The Shanghai Composite toyed with a move over the 3000 level, but backed off. It is trading near unchanged at 2988.80 as it fails to benefit from the strong US stock performance on the back of the AI stock surge in the US. The Hong Kong Hang Seng index was also higher earlier in the session but is now lower by -0.24%. Japan was closed for a holiday. The Australia’s S&P/ASX index is up by 0.40%, however.
Gold is little changed (+$1.45) and crude oil is down marginally (-$0.37).
With the US S&P and Dow closing at record levels and the Nasdaq index soaring by nearly 3% (and toyed with the all-time high close), focus remains on what is in store for AI stocks when markets in the US getting cooking in pre-market trading. It will be tough to beat some of the following results from yesterday’s session:
- Amazon, +3.55%
- Nvidia,+16.40%
- Super Micro Computers, +32.87%
- Salesforce, +3.56%
- Meta, +3.87%
- Crowdstrike, +6.34%
- AMD, +10.69%
- Arm Holding, +4.17%
- Broadcom, +6.31%
- Micron, +5.42%.
Have a good weekend, and thanks for your support.