“We’re likely to see another year in which 12-month inflation numbers remain uncomfortably high.” – US Treasury Secretary Janet Yellen
I expect massive volatility this week as the war with Russia and Ukraine continues. A few stories have developed this past weekend.
- Russia has asked China for assistance with military equipment and aid, along with economic purposes. If China agrees to support Russia, expect mass market volatility.
“We are communicating directly, privately to Beijing that there will absolutely be consequences for large-scale sanctions evasion efforts or support to Russia to backfill them” – Jake Sullivan, White House National Security Advisor
- Iran led a missile attack that struck Erbil, Iraq near the US consulate.
These stories are currently unfolding. If investors rush to cash, all markets suffer. If the bond market is seen as a safe haven, that will be good for mortgage rates.
Focusing on the US economy, we have a lot going on this week. Inflation numbers, Fed Meeting (With an expected rate hike of 0.25), Housing numbers and some employment numbers.
In The News
Monday
- 1 year and 3-year inflation expectations
Tuesday
- Produce Price Index
- Start of Fed Meeting
Wednesday
- Fed Meeting Ends
- Fed Chairman Powell Speaks
Thursday
- Initial and continuing jobless claims
- Building permits
- Housing starts
Friday
- Existing home sales
With CPI (consumer inflation) reaching 7.9% last week with no signs of slowing, I expect inflation to be high on the producer side of things too.
The Fed will let us know if they follow through on the .25 rate hike. What I think is more important (in terms of market reaction) is hearing what the Fed “expects” and “plans” to do in the future.
Chart Check
From a technical perspective, we are in a free fall. Any possibility of a support level is getting blown away with geopolitical news, and I fear it’s not done yet. (See above)
My stance on rates hasn’t changed. I’m not floating. I am educating my clients on the global environment we are in, how that affects the stock market and bond markets which directly (or inversely) affects our interest rates. I tell my clients how I think higher rates are a ticking time bomb for the high percentage of “Zombie” companies that cannot afford the interest payments on their debts. Because of that, the fed will eventually have to lower rates again (as mentioned in previous newsletters, probably just in time for the Biden administration to ramp up re-election campaigns) and we will have another low rate environment.
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