Bassanese Bites: Becalmed – April 04 2022
Global equities consolidated last week after solid gains over the previous two weeks, with the most notable market movement being a sharp drop in oil prices as the U.S. announced the biggest ever withdrawal from its strategic reserves. Equities continue to hope for a peace deal between Russia and Ukraine, and are also continuing to see solid U.S. economic growth as “good news”, even if it bolsters the case for aggressive Fed tightening. Indeed, the market has now almost fully priced a 0.5% hike at the May Fed meeting, and it would not surprise if the market started to toy with the idea of an even larger 0.75% move.
In fact, I’d argue 0.5% in May is no longer sufficient to jolt current high U.S. inflation expectations – I think the Fed should (though, of course, likely will not) hike rates by a full percentage point next month. Consider last Friday’s payrolls report: although the 431k in employment gain in March was a bit less than the 490k market expectation, February employment was revised up 72k. The unemployment rate, moreover, fell a bit more than expected to a near-historic low of 3.6% while annual growth in average hourly earnings was a touch more than expected at 5.6%.