Is the Fed Making a Policy Mistake?
With over 20 central banks having their rate meetings taking place this week it has been a rollercoaster. The Fed kicked off the major central banks with a more hawkish decision that projected three rate hikes for 2022. Then the SNB left rates unchanged, the BoE hiked rates, and the ECB kept rates unchanged but signposted the end of their QE program. In the middle of this hectic week, the Turkish central bank announced a rate cut of 100 bps. That was even though Inflation is currently above 20% in Turkey. Why did they do this? It was because of President’s Erdogan’s unorthodox belief that high-interest rates actually cause inflation. What a week!
Other key events from the past week
- * USD: Interest Rate Meeting, Dec 15: The Fed has doubled the pace of asset purchases and signalled three rate hikes for 2022. However, the USD sold off after the meeting in a ‘buy the rumour, sell the fact response’. This also boosted gold as break-even inflation rates fell helping real yields to fall too.
- * Omicron: More Reassuring News, Dec 14: Two doses of Pfizer’s vaccine gives 70% protection against hospitalisations & 33% protection against infection during the current Omicron wave. This is good news, but uncertainties remain.
- * GBP: Surprise Interest Rate hike, Dec 16: The BoE surprised markets with a hike to 0.25% from 0.10% on Thursday this week. Price pressures from a rising labour market are worrying the BoE, so they have increased rates to try and stop systemic inflation.
Key events for the coming week
- * AUD: Monetary Policy Minutes, Dec 21: The recent RBA decision showed that the RBA had shifted from a bearish bias to a far more neutral footing. This was a strong message and the minutes may reveal more details about the anticipated Australian economic rebound post their Delta variant outbreak.
- * Seasonal trades: Platinum set to profit? Dec 22: Platinum has some great seasonals in place gaining 14 times in 15 years from Dec 22 to Feb 18. Physical demand is strong at this time of year too. Check out the strong seasonal pattern here.
- * CAD: GDP & Omicron risk, Dec 23: The Canadian GDP print will show how well the Canadian economy is set to fight any Omicron risk alongside the recent floods out of British Columbia. Can the CAD stage a come back for next year and could this GDP print help set the stage?