Don’t be Fooled by the Quiet Markets

Whilst Friday's speech by Jay Powell may have sounded dovish, indicating that the banking stress may tighten credit standards and remove some of the need to raise rates, both he and James Bullard still pointed to the need for higher rates by yearend to control inflation.

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Another 2x25bp would take the fed funds rate in December to approximately 5.65% which is starkly in contrast to the market which is pricing a fed funds rate of 4.75%.

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The US debt ceiling blinking game, whilst likely to be resolved on or shortly after the “X date” of 1st June will generate further uncertainty keeping the MOVE index at historically elevated levels.

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Meanwhile, in US stocks a few equities are expanding their multiples and driving US equity markets higher, challenging the universal view and market positioning of a coming recession.

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Whilst on the other side of the Atlantic and Pacific a handful of European and Asian equity indices broke key resistance levels, if not made all-time highs.

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At the same time Oil continues to suggest weak economic growth, listing at $70 per barrel.

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These many opposing market tensions are creating a sense of balance but it is likely that this will pass.

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The one constant will remain volatility. Expect it to return.

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