Man bites dog

The current topics dominating the investor community are concentrated and not insignificant, trade and Brexit the two at present, however the Federal Reserve is the one that is consistent for investor sentiment. The Bank of China and the Federal Reserve have single handily reignited equity prices this year. Later Wednesday we hear what the Federal Reserve’s current thoughts on interest rates are. There is currently a divergence between the Federal Reserve’s dot plot’s and what the market is now anticipating. The dot plots are the mechanism by which the Fed communicates what it believes is the path of interest rates. The current dot plot path remains for one or possibly two increases this year, the market now is focussing in on no rises.  The market expects the dot plot path to be lowered at Wednesday’s meeting, there by reinforcing its more dovish stance.

Wage inflation has been rising however the Personal Consumption Expenditure Index, has been falling. One would expect as wages rise so should prices. At some point the Federal Reserve may start to worry, if wage inflation continues to rise on the back of a strong labour market, that they will be forced to push rates up again. This may be a message Mr Powell would like to give. Alongside the rate announcement the Federal Reserve will announce its Economic projections.

Some areas of the UK economy may be struggling however the employment data on Tuesday continues to suggest that the labour market remains robust. The unemployment rate came in at 4% and average earnings climbed 3.4%. Wages are growing in real terms. Ahead of the Bank of England meeting on Thursday there is a large selection of economic data in the form of inflation. Producer prices, the retail price index and the latest inflation rate. Not that any of this data is likely to affect the Banks interest rate decision on Thursday. However, should earnings growth remain strong this may force the Bank of England’s hand as it could the Fed later in the year.

One must admire the way the British press sometimes reports stories with eye grabbing headlines. Sir Charlie Bean former economist with the Bank of England, according to the headline, a no deal Brexit will be as chaotic as the Lehman collapse. What Mr Bean said was that it is hard for business to prepare for a no-deal Brexit in a similar way as it was for the Lehman collapse.

On Tuesday morning I appeared with Victoria Scholar on IGTV, covering the Fed meeting, Brexit and UK assets. I have included the link

Posted on March 19, 2019 .