Have We Reached Peak Hawkishness?

TL;DR

The recent release of the Fed meeting minutes suggests a slightly dovish tone, signaling a fear of over tightening. Equity markets have experienced a material rally despite rising interest rates. The retail sales report shows a flat headline number but a trending lower inflation-adjusted retail sales volume.

Transcript

good afternoon everyone and welcome to the real vision daily briefing i'm ed lestino from real vision sending to you live wednesday august 17th hot on the heels i mean it's being released we saw an initial positive reaction in equity markets to this set of minutes uh but but uh after what we saw a new retracement that we need to unpack all of the m... Read More

Key Insights

• ❓ The market initially reacted positively to the Fed meeting minutes but experienced a retracement due to concerns of over tightening.
• 💂 The recent equity market rally is a result of a significant shift in market sentiment, with investors caught off guard and forced to adjust their positions.
• 😚 While the headline retail sales number appears flat, a closer look reveals a decline in inflation-adjusted retail sales volume, indicating a potential slowdown in the real economy.
• 🐢 The goldilocks investment scenario, characterized by slowing inflation and soft landing in economic growth, is uncertain and dependent on how quickly inflation breaks down.
• 🖤 The market regime is currently characterized by confusion and indecision, indicating a lack of conviction in pricing future outcomes.
• 😮 The possibility of the Bank of England and the European Central Bank continuously fighting rising inflation may put pressure on the Fed to continue hiking.
• 🧑‍🏭 The energy sector, particularly crude oil, has experienced a bearish market due to factors such as China's zero COVID policy, the return of Iranian supply, and potential strategic petroleum reserve (SPR) releases.

Questions & Answers

Q: What was the main message from the new Fed meeting minutes?

The Fed meeting minutes suggest a slightly dovish tone, with officials expressing concern about over tightening and a need to let previous tightening measures work through the economy.

Q: How have equity markets reacted to the release of the meeting minutes?

Despite rising interest rates, equity markets have experienced a material rally, fueled by positive data points that refute bearish views on inflation and economic recession.

Q: What does the retail sales report indicate?

While the retail sales report shows a flat headline number, a closer look reveals a decline in the inflation-adjusted retail sales volume. However, the control group, which factors into GDP calculations, has seen acceleration.

Q: How does the inflation outlook in the UK and Europe compare to the US?

Inflation in the UK and Europe is still on the rise, with the UK's recent CPI print being the highest in over 40 years. The peak of inflation may still be ahead in Europe, while the US has likely already reached its peak.

Summary & Key Takeaways

• The Fed meeting minutes indicate a cautious approach to rate increases, emphasizing the need to let previous tightening measures take effect.

• Despite rising interest rates, equity markets have rallied due to positive data points and the refutation of bearish views on inflation and economic recession.

• The retail sales report shows a flat headline number but a decline in inflation-adjusted retail sales volume.