How one interest-rate hike by a small African nation could derail Powell’s Fed policy plans and sink stocks

MarketWatch2021-11-23

Investors need to stop obsessing about the Fed taper and pay attention to the dozens of central banks that have hiked rates so far this year MarketWatch photo illustration/Getty Images, iStockphoto ...

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精彩评论

xuannie
2021-11-23
xuannie
interest rate hike affects the stock market, no.?
hotwheels
2021-11-23
hotwheels
Currency: Many central banks have also lifted rates in effort to prop their currencies up as the U.S. dollar strengthens. The line of reasoning here is two-fold: higher inflation (all else equal) means a fundamentally weaker currency, and higher interest rates appeal to carry traders looking to bank the higher yields: bringing flows and lifting demand for a country's currency.
hotwheels
2021-11-23
hotwheels
interest rate is going to go up. This will reduce the money supply and hopefully reduces the inflation.
AudTKH
2021-11-23
AudTKH
K
- Kfccc:
  Ok
crtyn
2021-11-23
crtyn
Like pls
leejk
2021-11-23
leejk
Thanks

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Without really planning it, I decided to add to that tweet — making a live thread tracking the global policy pivot from rate cuts to rate hikes.  Since then I’ve noted rate increases both large and small by the central banks of Azerbaijan, Zambia, Brazil, Russia, Iceland, Angola, Sri Lanka, South Korea, Norway, and New Zealand, to name a few. In total, I have counted 94 interest rate hikes across 36 central banks so far this year.\nNow obviously if this was just one rate hike by one central bank, or even a handful, it might not even warrant a mention. But when you start talking about these kinds of numbers, it’s hard not to notice a pattern. In that respect, the chart below does a good job of mapping that pattern precisely:\n\nIt shows the proportion of central banks in rate-hike mode (defined as the last interest rate move being an increase). After dropping to zero early in 2020, fully two-thirds of emerging market central banks now have pivoted into rate-hike mode.\nThere are a few common themes as to why countries around the world are raising rates, including inflation, currency and financial stability.  Let’s take a closer look:\nInflation: We quickly went from few people talking about inflation at the start of the year to inflation being perhaps the hot macro topic of the past few months.\nBase effects (easier to record a higher pace of growth when comparing to a low base), bounce backs (reopening + stimulus = strong demand), and backlogs (supply-chain hell) combined to drive a sharp shift in both inflation and inflation expectations.\nEmerging economies are particularly sensitive to inflation. In recent times, as a group, they’ve tended to see an annual rate of inflation twice that which you would see in developed economies.  Moreover, you only need to go back just over 20 years to see hyperinflation in emerging economies (as a group they saw peak inflation of 115% in 1993, and double-digit inflation all the way through to 2000).\n\nThink about your average emerging market central bank governor — many of them were probably junior economists 20 years ago. Their formative years were no doubt heavily influenced by runaway inflation.  Little wonder then they are hot on the trigger to hike rates as inflation heats up.\nCurrency: Many central banks have also lifted rates in effort to prop their currencies up as the U.S. dollar strengthens. The line of reasoning here is two-fold: higher inflation (all else equal) means a fundamentally weaker currency, and higher interest rates appeal to carry traders looking to bank the higher yields: bringing flows and lifting demand for a country’s currency.\nFinancial stability: This term is basically a euphemism for “try not to blow up bubbles.”  In other words, if you keep rates too low for too long you risk igniting asset-price bubbles, which if they burst in a chaotic fashion can trigger financial instability.  Case in point: the housing bubble of the mid-2000s, its subsequent bursting and the ensuing Great Financial Crisis.\nOn that note, we probably should pay more attention to this aspect, as developed-economy housing market valuations have already sailed past the pre-financial crisis highs.\n\nYes that’s right: Ultra-low borrowing costs have helped push housing market valuations in some countries well above pre-financial crisis levels.  This is one reason why it’s said that monetary policy is a blunt tool — it roughly does the job when it comes to avoiding deeper economic recessions and depressions, but the price is often higher asset prices.\n\n “Expect less of a tailwind for risk assets, upward pressure on borrowing costs, and likely more volatile markets going forward.”\n\nThe global policy pivot to rate hikes (likely to be soon joined by Canada and the U.K.) means investors can expect incrementally less of a tailwind for risk assets, upward pressure on borrowing costs, and likely more volatile markets going forward.\nIndeed, mapping out the previous paths in policy, the chart below shows how shifts from easing to tightening at best means a leveling-out or regime shift in the market; e.g. from a near vertical line to more chopping and ranging.  At worst, if tight enough for long enough, this policy change can trigger an outright shift from bull market to bear market.\n\nYou might be thinking, what do all these random small, emerging-market central banks hiking interest rates have to do with the S&P500? You’ve probably heard the saying that when the Fed sneezes, the rest of the world catches a cold, but in this sense, given the Fed is still likely to be dragging its feet on policy for some time, it’s almost more that the rest of the world catches a cold and U.S. equities sneeze.\nYou only need to go back to 2015-16 where much of the volatility in U.S. markets back then was driven or triggered by issues in China and emerging markets, or in the post-financial crisis period when the eurozone debt crisis was raging and weighing on global investor sentiment.\nBeyond regional crises — which can be precipitated by premature stimulus removal — the bigger issue is the common themes motivating monetary policy.\nWhile each central bank has its own set of circumstances, the common theme is a reaction to higher inflation, stronger growth and a desire to avoid overcooking markets.  It’s the smaller/developing-country central banks that are most exposed to these global trends, and so we can look at them as bellwethers or leading indicators.\nThe forces in motion that triggered a rate hike in Mozambique are the same forces that will ultimately drive the Fed to step away from stimulus.\nIt may take time, but one thing I know to be true is that these things go in cycles.  While it looks and feels like the Fed has your back forever in the markets right now, this won’t be always true.  “Don’t fight the Fed” means swim with the tide, not against it, and the tides here are clearly turning.","kind":null,"is_publish_news":true,"is_publish_highlight":true,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":875876401,"gmtCreate":1637636819496,"gmtModify":1637636875995,"author":{"id":"3577853640817618","authorId":"3577853640817618","name":"xuannie","avatar":"https://static.tigerbbs.com/094bb4526c85c5b6ade1fef7274ae82b","vip":1,"crmLevel":7,"crmLevelSwitch":0},"htmlText":"interest rate hike affects the stock market, no.?&nbsp;","listText":"interest rate hike affects the stock market, no.?&nbsp;","text":"interest rate hike affects the stock market, no.?","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://laohu8.com/post/875876401","repostId":1150397775,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"CN"},{"id":875849099,"gmtCreate":1637635312089,"gmtModify":1637635312219,"author":{"id":"3555967496683005","authorId":"3555967496683005","name":"hotwheels","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"crmLevel":6,"crmLevelSwitch":0},"htmlText":"Currency: Many central banks have also lifted rates in effort to prop their currencies up as the U.S. dollar strengthens. The line of reasoning here is two-fold: higher inflation (all else equal) means a fundamentally weaker currency, and higher interest rates appeal to carry traders looking to bank the higher yields: bringing flows and lifting demand for a country's&nbsp;&nbsp;currency.","listText":"Currency: Many central banks have also lifted rates in effort to prop their currencies up as the U.S. dollar strengthens. The line of reasoning here is two-fold: higher inflation (all else equal) means a fundamentally weaker currency, and higher interest rates appeal to carry traders looking to bank the higher yields: bringing flows and lifting demand for a country's&nbsp;&nbsp;currency.","text":"Currency: Many central banks have also lifted rates in effort to prop their currencies up as the U.S. dollar strengthens. The line of reasoning here is two-fold: higher inflation (all else equal) means a fundamentally weaker currency, and higher interest rates appeal to carry traders looking to bank the higher yields: bringing flows and lifting demand for a country's currency.","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://laohu8.com/post/875849099","repostId":1150397775,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"CN"},{"id":875840911,"gmtCreate":1637635198392,"gmtModify":1637635198521,"author":{"id":"3555967496683005","authorId":"3555967496683005","name":"hotwheels","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"crmLevel":6,"crmLevelSwitch":0},"htmlText":"interest rate is going to go up. This will reduce the money supply and hopefully reduces the inflation.&nbsp;","listText":"interest rate is going to go up. This will reduce the money supply and hopefully reduces the inflation.&nbsp;","text":"interest rate is going to go up. This will reduce the money supply and hopefully reduces the inflation.","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://laohu8.com/post/875840911","repostId":1150397775,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"CN"},{"id":875850771,"gmtCreate":1637634249399,"gmtModify":1637634249399,"author":{"id":"3575582076363736","authorId":"3575582076363736","name":"AudTKH","avatar":"https://static.tigerbbs.com/e4905e1cd622b8faa04ad4125cd04a83","vip":1,"crmLevel":2,"crmLevelSwitch":0},"htmlText":"K","listText":"K","text":"K","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":1,"repostSize":0,"link":"https://laohu8.com/post/875850771","repostId":1150397775,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":6688398,"gmtCreate":1637634540210,"gmtModify":1637634540308,"authorId":3571374591593124,"author":{"id":3571374591593124,"authorId":3571374591593124,"name":"Kfccc","avatar":"https://static.tigerbbs.com/1e4496cfb3267b974c39c7053908ad87","vip":1,"crmLevel":4,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":875850771,"type":1,"supId":0,"prevId":0,"content":"Ok","text":"Ok","html":"Ok"}],"langContent":"CN"},{"id":875822831,"gmtCreate":1637633825428,"gmtModify":1637633825598,"author":{"id":"3581556523917541","authorId":"3581556523917541","name":"crtyn","avatar":"https://static.tigerbbs.com/62554f7ddf70dc78b9e6f2cc7c56c702","vip":1,"crmLevel":2,"crmLevelSwitch":0},"htmlText":"Like pls","listText":"Like pls","text":"Like pls","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://laohu8.com/post/875822831","repostId":1150397775,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"CN"},{"id":875828919,"gmtCreate":1637633673529,"gmtModify":1637633673640,"author":{"id":"3569553993868964","authorId":"3569553993868964","name":"leejk","avatar":"https://static.tigerbbs.com/13d40c01a9eef0aa4dc0a703e255de7a","vip":1,"crmLevel":6,"crmLevelSwitch":0},"htmlText":"Thanks","listText":"Thanks","text":"Thanks","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":0,"repostSize":0,"link":"https://laohu8.com/post/875828919","repostId":1150397775,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"CN"}],"isCommentEnd":false,"newsSizeData":{"likeSize":93,"commentSize":10,"repostSize":0,"favoriteSize":1,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":false,"deviceId":"web-server-community-laohu8-v3","version":"4.25.1","shortVersion":"4.25.1","platform":"web","vendor":"web","appName":"laohu8","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/1150397775"}