Making sense of the markets this week: March 26, 2023


Inflation rate headlines still most interesting

Global Markets continue to swing up and down based, in large part, on anticipation of the monetary policy going forward.

Consequently, news of the U.S. Federal Reserve 0.25% rate hike—to a band of 4.75% to 5%—was a big deal this week. One bit lost in the shuffle: The fact that the rate pause from the Bank of Canada (BoC) appears to have been the right decision, given the disinflationary momentum that Statistics Canada revealed this week.

StatCan reported that Canada’s February inflation rate was down to 5.2%. That’s lower from 5.9% in January, and 0.2% lower than the consensus forecasted. While high grocery prices continue to draw people’s ire, two key pieces of good news didn’t get as much attention:

  1. Wages rose faster than inflation for the first time in two years: 5.4% versus 5.2%.
  1. Global auditor RSM Canada predicts that 2023 will end with inflation at about 3%, and that the rate will hit 2% in 2024.

Grocery prices are bound to fluctuate, based on large supply-side issues caused by the avian flu and citrus diseases. But there is little the BoC can do about that. For now it appears that rate-sensitive Canadian pricing is on a consistent path back to stability.

Meanwhile, U.S. Fed Chair Jerome Powell continued the inflation fight with the widely anticipated “quarter point” rate hike. He admitted to the inexact nature of monetary policy: 

“I do still think, though, that there’s a pathway to [a soft landing]. I think that pathway still exists, and, you know, we’re certainly trying to find it.”

It’s clear Powell sought to reaffirm his commitment to hawkish monetary policy, saying:

“If we need to raise rates, we will […] Of course, we will eventually get a tight enough policy to bring inflation down to 2%.”

Stocks appeared to neutrally react to this news, but expert and commentators weren’t sure how to apportion credit for the downwards momentum to the rate increase versus the news from the world of banking.

So, uh, is the bank crisis over?

As quickly as the “bank run” headlines started, it seems to have quieted down earlier in the week. A couple of mid-sized niche U.S. banks collapsed, and one terribly-managed Swiss bank got “sold off for parts.” But, as far as the average person’s confidence in the overall system went, we were essentially out of the woods.

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