12.01.2022 – For the time being, the market is getting used to the prospect of tighter tapering: Jerome Powell has reaffirmed before the U.S. Senate the will to fight inflation. But he left himself a back door open to tightening monetary policy. As is so often the case, investors are poking around in the fog. The new inflation data should bring clarity, how strongly the Fed steps on the brakes.
The major indices have presented a small countermovement, ditto the Cryptos. Which could be due to short covering, according to Nomura.
Both as well as
Or else to the big both/and from the Federal Reserve. Powell reiterated on Tuesday before the Senate his intention to prevent a solidification of inflation, he wants the quick monetary policy turnaround. Given strong inflation in the U.S., he said the Federal Reserve will “use all tools” to support the economy and a strong labor market. However, Powell sees special factors like Omikron – it could disrupt the supply chain for months to come. And we are a long way from normalcy, he said.
Thus, the Fed must say goodbye to ultra-loose monetary policy. The Fed had signaled three interest rate steps in December, without giving a specific time frame. However, Goldman Sachs now expects four hikes. The Fed also faces tapering: capping the Fed’s balance sheet of nearly $9 trillion. The danger many see: The Fed could hit the brakes too hard and trigger a recession. Which would then result in a new quantitative easing – and fresh liquidity for the financial market.
Trading in Tightening
Investor legend Paul Tudor Jones, in any case, judged on CNBC that investors should first say goodbye to tech stocks and crypto in a new monetary policy and seek “deep value” again: “The things that performed the best since March of 2020 are going to probably perform the worst in this tightening cycle. (…) Clearly, all the inflation trades of the pandemic area are going to be challenged right now,” judged Tudor Investment CIO.
New inflation data
Much, if not all, depends on price inflation. Inflation rose to 6.8 percent in November – the highest since 1982 – and the new Consumer Price Index comes out today – analysts expect year-over-year inflation to be 7.1 percent. If inflation is much higher than that, fears about quick, tough moves by the Fed will once again rage on the trading floor. But if it is moderate, investors will assume that the money supply will be throttled rather gently and slowly – and they will celebrate. As of 2:30 p.m., we’ll be smarter. Bernstein Bank wishes you good luck – keep an eye on the realtime news!
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