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Markets are weighing on comments from the Bank of England\u2019s Monetary Policy Committee Member Catherine Mann who suggested that sterling could weaken further if markets have not sufficiently priced in the prospect of a hawkish Federal Reserve and European Central Bank.
\nWhile Mann\u2019s assessment on this specific issue was descriptive rather than normative, she indicated that \u201cthere has been a quite a [sic] hawkish tone coming from the Federal Reserve and ECB\u201d, suggesting perhaps that markets have downplayed policy marker\u2019s hawkish tones. Hence, as investors navigate expectations over the Fed\u2019s rate hike course, she stated that \u201cif Fed hawkishness is not priced in, the pound could fall further\u201d as investors seek higher rates of interest. <\/p>\n<\/div>\n <\/div>\n <\/div>\n <\/div>\n<\/div>\n\n\n
Mann\u2019s comments came hours before the Fed Chair Jerome Powell told the Senate Banking Committee that the market may need to upwardly revise the Fed\u2019s rate hike expectations, given a flurry of recent inflationary data coming in higher-than-expected. Here, Powell stated that \u201cIf the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.\u201d Therefore, given that these comments follow the Fed conducting a less aggressive 25bpt rate hike in February, markets weighed on the prospect of the central bank\u2019s proclivity to instead opt for a more aggressive 50bpt hike moving forward \u2013 as they did in May and December of 2022 (which came alongside 75bpt hikes in June, July, September and November). Hence, as investors digested Powell\u2019s hawkish comments, the dollar rallied with the DXY rising some 1.25% in the subsequent few hours after his testimony. Trading this morning saw the DXY rise to 105.8 hitting three-month highs. <\/p>\n <\/div>\n
The upside dollar moves thus suggested that investors had not priced in the extent of the Fed\u2019s hawkishness, as Mann had posited. Indeed, according to CME\u2019s FedWatch tool markets are forecasting a 70% chance of a 50bpt hike, up from 30% just a few days prior to Powell\u2019s comments. Money markets are also pricing in a terminal rate of 5.65% to be realised around September.<\/p>\n
Mann, who joined the MPC in September 2021, is generally considered to be amongst the BoE\u2019s most hawkish member and has often called for a front-loaded strategy where the central bank raises rates more aggressively at the start of their hiking cycles with the intention of conducting smaller ones down the line. Indeed, Mann was the only member to vote for 75bpts on 15th December 2022 (where the consensus opted instead for 50bpts). Hence, given the Bank of England\u2019s smaller more incremental rate hikes and persistent \u2018sticky\u2019 inflation, Mann implied that the terminal rate is \u201cbeyond the forecast horizon\u201d.<\/p>\n <\/div>\n <\/div>\n <\/div>\n<\/div>\n\n
Money markets have currently priced in a terminal rate of 4.7% as the base rate currently stands at 4%, though markets remain cautious over whether the BoE will raise rates 25bpts (given MPC members Swati Dhingra and Silvana Tenreyro\u2019s dovish tendencies).<\/p>\n
Hence, all eyes are now on the respective interest rate decisions from the Fed on the 22nd March and the BoE’s the following day. <\/p>\n<\/div>\n <\/div>\n <\/div>\n <\/div>\n<\/div>\n\n\n
As investors upwardly revised their rate hike expectations from the Fed, the US two-year yield (which is sensitive to short term hike expectations) has risen 1.26% in the last 24-hour session. This now puts the 2-year yield above 5% – breaching the previous November highs \u2013 which now represents the highest since 2007. This comes as the two year saw highest monthly rise since 1981 over February as it rose 70bpts. The US 10-year yield has also risen to 4%, up 24bpts in the last 24 hours, as investors weigh on rates being higher for longer. Exceptional Beauty<\/a><\/p>\n <\/div>\n <\/div>\n <\/div>\n<\/div>\n\n Yesterday saw further pressure on equities as investors continue to digest the prospect of a hawkish fed which has seen the market upwardly revise a terminal rate of around 5.6%. As such the S&P 500 ended yesterday 1.53% lower while the tech heavy Nasdaq and Dow Jones also lost 1.25% and 1.72% respectively. Across the Atlantic, European shares also ended in the red, with the Stoxx 600 falling 0.8% over the session. Skin Care<\/a><\/p>\n <\/div>\n <\/div>\n <\/div>\n<\/div>\n\n As investors upwardly revised their rate hike expectations from the Fed, the prospect of suppressed demand due to easing growth saw pressure on oil with WTI crude futures falling 3.6% over Tuesday\u2019s session. This comes as markets also digested OPEC\u2019s Secretary-General Haitham Al-Ghais warning over the potential for suppressed demand from Europe and the US. Yesterday\u2019s move indicates that WTI crude futures have fallen a little over 1.24% on the month, and 26.4% on the year, having spiked at around $120dpb last March.<\/p>\n<\/div>\n <\/div>\n <\/div>\n <\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":" Mann and Powell: Markets Digest Comments Both Sides of the Pond<\/p>","protected":false},"author":15,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2],"tags":[],"rp-language":[16],"class_list":["post-368","post","type-post","status-publish","format-standard","hentry","category-market-updates","rp-language-en_gb"],"_links":{"self":[{"href":"https:\/\/hamiltoncourtfx.com\/es\/wp-json\/wp\/v2\/posts\/368","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/hamiltoncourtfx.com\/es\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/hamiltoncourtfx.com\/es\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/hamiltoncourtfx.com\/es\/wp-json\/wp\/v2\/users\/15"}],"replies":[{"embeddable":true,"href":"https:\/\/hamiltoncourtfx.com\/es\/wp-json\/wp\/v2\/comments?post=368"}],"version-history":[{"count":10,"href":"https:\/\/hamiltoncourtfx.com\/es\/wp-json\/wp\/v2\/posts\/368\/revisions"}],"predecessor-version":[{"id":4016,"href":"https:\/\/hamiltoncourtfx.com\/es\/wp-json\/wp\/v2\/posts\/368\/revisions\/4016"}],"wp:attachment":[{"href":"https:\/\/hamiltoncourtfx.com\/es\/wp-json\/wp\/v2\/media?parent=368"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/hamiltoncourtfx.com\/es\/wp-json\/wp\/v2\/categories?post=368"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/hamiltoncourtfx.com\/es\/wp-json\/wp\/v2\/tags?post=368"},{"taxonomy":"rp-language","embeddable":true,"href":"https:\/\/hamiltoncourtfx.com\/es\/wp-json\/wp\/v2\/rp-language?post=368"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}Equities Update<\/h2>\n <\/div>\n