Fed ready to do whatever it takes

August 29, 2022
Last week there was much speculation about whether Fed Chair Jerome Powell’s annual Jackson Hole speech would be a market moving event or not, and it turned out it was, for equity markets at least.

Last week there was much speculation about whether Fed Chair Jerome Powell’s annual Jackson Hole speech would be a market moving event or not, and it turned out it was, for equity markets at least. It was a short and punchy speech that reiterated what the Fed has been saying for some time - battling inflation is the number one policy priority, and if it means a recession and rising unemployment is the price that will have to be paid for future price stability, then so be it. He made three points:

1.    The seventies taught policy makers that “that central banks can and should take responsibility for delivering low and stable inflation” (emphasis on this).

2.    “The longer the current bout of high inflation continues, the greater the chance that expectations of higher inflation will become entrenched” and so a wage/price spiral should be avoided at all costs.

3.    They will “keep at it until the job is done.”  

 

He then repeated that phrase on closing for added emphasis, and it is this comment which is now being compared to Mario Draghi’s “we’ll do whatever it takes” speech. That speech marked a turning point in the European debt crisis, one which turned out to be very market friendly. This speech was not meant to reassure markets, and it may have been the tone of the opening remarks that were particularly chilling for equity markets:

 

“Restoring price stability will take sometime and requires using our tools to forcefully to bring demand and supply into better balance. Reducing inflation is likely to require a sustained period of below-trend growth. Moreover, there will very likely be some softening of labor market conditions. While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses. These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.”

 

This caused US markets to fall by around 3% on the day, leaving them down more than 4% for the week. The Nasdaq was down by a bit more, with all the large tech stocks down5-10%, but the falls were also fairly broad-based with all sectors apart from energy and materials down sharply. This is not surprising, as he is signalling that while they are forecasting a potentially painful recession, the Fed will most likely not be there to rescue the economy. This is arguably not news, but it did directly counter the growing hope that with inflation potentially peaking, a soft landing was possible, and if it wasn’t then the Fed would pause rate hikes in the knowledge that the inflation was heading in the right direction. This speech left no doubt that rates are on the rise until ‘the job is done’.    

 

The reaction from other markets was more muted, notwithstanding a 2% fall across Asian markets on Monday, and emerging markets were actually up for the week, led by Latin America which remained in positive territory for the week. The Australian market had been more or less flat for the week, with moderate losses from the banks being offset by gains form energy and materials stocks, while Qantas defied its critics (mostly customers) with decent results and a $400m stock buyback. Woolworths was one of the prominent losers after results showed they were doing better than Coles but in an increasingly difficult operating environment where it is getting more difficult to pass cost increases on to consumers. These results capture the tone of the reporting season so far - a mixed bag with as many earnings misses as beats, but overall fairly positive.    

 

Perhaps most surprising after the Jackson hole speech was the lack of movement in bond markets which barely flinched, and in fact long term yields actually finished the week lower in most Western markets. Having had the weekend to think about it, Australian yields have ticked up more recently and US bonds appear to be following suit. Corporate bond spreads also eased slightly while commodity markets were mostly up.

Markets bounce back after soft start to the week, inflation trends and a review of February's performance.

August 2, 2024
Global markets were relatively flat this week after an initial dip, recovering slightly towards the end of the week.
Read More

Volatility, Fed Rate Signals and Global Growth Trends

August 2, 2024
Read More

A flat market despite surprising inflation data

August 2, 2024
Despite a relatively calm week in global markets, the focus was on higher-than-expected inflation figures.
Read More

Central Banks Shake Markets: The Weekly Market Sense Check

August 2, 2024
This past week saw eventful moves in markets, largely driven by central bank actions. The most unexpected was the Swiss National Bank's decision to reduce rates, going against the broader trend. However, this did not have a major impact on markets overall.
Read More

Q1 2024 Update - World Markets Roar, ASX Shouts A Bit

August 2, 2024
This week, our Q1 update reveals markets experiencing an uptick with notably low volatility.
Read More

Markets navigate cross currents of stronger economies and a higher rate outlook

August 2, 2024
Read More

Markets navigate cross currents of stronger economies and a higher rate outlook

August 2, 2024
Read More

Financial markets whipsaw as stubborn inflation forces central banks to recalibrate rate cut plans.

August 2, 2024
Read More

Market indigestion: Strong US Economic, Data Rising Inflation and market volatility

August 2, 2024
Read More

A tug-of-war between solid corporate profits and gathering macroeconomic headwinds

August 2, 2024
Read More

April 2024 in review: Volatility and Mixed Economic Data

August 2, 2024
Read More

Fed Holds Steady as Global Markets Respond to Mixed Economic Cues

August 2, 2024
Read More

"What do I tell a client who wants to invest in Crypto?"

August 2, 2024
With 2021 bringing cryptocurrencies into the spotlight for both retail and institutional investors, is there a place for these currencies within client portfolio's?
Read More

The market has a "breadth" problem

August 2, 2024
Join InvestSense Director Jonathan Ramsay and Andrew Hunt of Hunt Economics as they discuss the markets ‘breadth’ problem and how strong liquidity should keep things afloat until February.
Read More

Finding value and maintaining confidence in a FOMO world

August 2, 2024
Join host Toby Potter of IMAP with Nick Kirrage of Schroders and Jonathan Ramsay of InvestSense as they discuss value as a style, and as a driver of conviction when investing.
Read More

Inflation in 2022 - Beware of cross currents in 2022

August 2, 2024
With inflation appearing to be on the way up again, what are some of the possible scenario’s for 2022? Where does inflation go from the zero bound we’ve reached?
Read More

What happened in markets in 2021, and why?

August 2, 2024
Join InvestSense Director, Jonathon Ramsey to reflect on the price action seen in markets in 2021 and what this might mean for 2022.
Read More

We've got a bad case of FOMO, but it's not what you think

August 2, 2024
With valuation still being the lightening rod for when markets react to external forces, the most expensive things tend to move the most. What does this mean for global asset allocators, and what is InvestSense’s position?
Read More

Helping your clients assess the climate impact of their Portfolio

August 2, 2024
Nathan Fradley explains how the ethosesg technology can help you assess and design an ethical portfolio that aligns to an investor’s personal values.
Read More

Carbon credits and investing – is it the outcome we expect?

August 2, 2024
ETFs that invest in carbon credits are now available. Why should we assume that their price will go up over time? And does buying a carbon credit ETF actually contribute positively to emissions reduction? Will it actually generate the outcome investors are expecting? This article explores the issues around investing in carbon credits.
Read More

Better World makes a difference with investment in renewables

August 2, 2024
There are many direct assets and funds that contribute positively to climate action within the InvestSense Better World Portfolios. Meridian Energy is one of the stand-out direct assets in the portfolio with a climate energy focus.
Read More

Bad news equals good news

August 2, 2024
In recent years professional investors have got increasingly used to the fact that good news is bad news for markets because higher interest rates are likely to be necessary, and of course vice-versa. However, last week the effect was stronger than ever and stocks rallied mid-week amidst reports of widespread lay-offs and expectations of a weak US jobs report.
Read More

‘Buy the dip’ opportunism start surfacing

August 2, 2024
The US market finally market caught a bid last week. Early in the week the market was down few percent after an earnings miss by ad dependent social media platform Snap (of Snapchat fame) combined with weak guidance raised more doubts about the economy and economic resilience of tech companies.
Read More

US momentarily dips into official bear market territory

August 2, 2024
The seventh negative week in a row for the US sent it briefly into official bear market territory before it recovered slightly late on Friday. The world’s largest stocks (Apple, Microsoft Amazon and Google) are all down 25%.
Read More

How Mark Lewin saved 13 hours a week with Managed Accounts

August 2, 2024
Mark Lewin was a financial planner, but is now the Director of Back Office Heros. In his planning business he gained significant efficiencies by recommending and implementing managed accounts for his clients. He tells us how...
Read More
Icon of a letter

InvestSense insights, delivered straight to your inbox.

Icon of a letter

Get the latest industry news

Icon of a letter

Get the latest industry news

Icon of a letter

Get the latest industry news