Bond yields marched higher after Fed’s Christopher Waller said central bank has ‘a ways to go’ before pausing its rate hiking cycle. U.S. stocks are declining after the latest Fed speak pushes back on the idea that the Fed is almost done hiking and after U.S. President Joe Biden and Chinese President Xi Jinping’s first in-person meeting delivered the standard rhetoric about avoiding a cold war. Obviously, this is just the beginning of talks between the world’s two largest economies, but it seems unlikely that we will see both sides cooperating anytime soon. Whether or not things take a turn for the better or worse will hinge on Secretary of State Anthony Blinken’s trip to China.
Fed
Waller did his best to convince markets that rates will ‘keep going up’ despite prices cooling a lot faster than expected. The Fed’s mission is to push back on the market’s expectations that rates will get cut at the end of next year. They want this round of hikes to not lose any effectiveness. We should anticipate that most Fed members will stick to the hawkish script this week.
Fed’s Lael Brainard, who is clearly not on the hawkish side, noted that the Fed will probably ‘soon’ slow the pace of rate hikes. Brainard noted that the inflation data was reassuring preliminary.
The Fed can’t afford to deliver any strong dovish hints, as that will make its tightening of rates less effective in battling inflation.
Crypto
Cryptocurrency traders are still saying what-the-FTX is happening? Bitcoin and Ethereum are hanging onto any broader risk appetite for dear life. A decent crypto rebound was forming but the rise in bond yields is seeing that earlier rally fade.
Much of the attention remains on FTX and Binance. Binance is trying to create some buffers to help the industry in case it gets ugly again. Binance CEO Zhao tweeted, “Binance is forming an industry recovery fund, to help projects who are otherwise strong, but in a liquidity crisis.”
Cryptos rallied on Zhao’s tweet, but it seems like an uphill battle on getting this fund up, especially considering all the scrutiny and eventual regulatory gauntlets that are coming to every major crypto exchange.
The Fed’s Waller reminded traders that the United States is nowhere near developing an official digital version of the dollar. Waller’s pessimistic outlook for the digital dollar suggests cryptos should still have years before the government can reach agreement on how to turn their fiat digital.
The rebound in crypto is looking as strong as the recent push higher with stocks. Too much of Wall Street is turning defensive and that might make it difficult for some traders to test the crypto waters just yet.
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