The stock market recovery has stalled this week despite indices ending on a positive note as investors digest the latest speech from central banks.
Naturally, front and center on this is the Fed which has notably become more hawkish, something the minutes confirmed is not just a knee-jerk response to the latest economic reports.
We all expect James Bullard to be at the more hawkish end of the spectrum, so his call this week for rates to hit 3.5% this year didn’t cause the shock and awe it would have had they come from certain other members. Lael Brainard’s admission on rates and the balance sheet caused more of a shudder, despite being less aggressive, and were later confirmed by the minutes themselves.
But as ever, investors are taking the prospect of high inflation and rapid rate hikes in their stride and appear relatively undeterred. The yield curve has normalized a little over the week, which means the dreaded 2/10 inversion has reversed, which may be providing some light relief. I imagine there’ll be plenty more wild swings over the coming weeks.
CBR Cuts Rates And Eyes More
Recent actions from the Kremlin seemingly buoy the Bank of Russia despite severe sanctions imposed by the West. The capital controls that have been imposed have helped to shore up the ruble which appears to have given the CBR confidence that interest rates no longer need to be so high.
It cut the Key Rate by 3% and left the door open to further cuts depending on financial and economic conditions. At 17%, the rate remains incredibly high as inflation is still expected to spike and the economy to contract severely. Given how markets have responded, the CBR may follow up with further easing later this month.
Bitcoin Seeing Support But Missing Out on Risk Rebound
It’s been a rough week for Bitcoin which has been hammered by deteriorating risk appetite just after it broke through a major resistance level. The recovery of risk has only seen it stabilize, which is interesting given its momentum before this period. It has found some support at around $43,000, which is the 50% retracement of the March lows to highs and coincides with the pre-breakout resistance. Maybe just a coincidence but certainly a level to watch.