10 Things You Need To Know: September 13, 2022

Key data releases this week include: NFIB Small Business Optimism (Tue), CPI (Tue), PPI (Wed), retail sales (Thu), industrial production (Thu), and consumer sentiment (Fri).

Bloomberg

September 9, 2022

US household net worth declined in the second quarter by the most on record as aggressive action by the Federal Reserve to tame rapid inflation sent stocks plunging.  Household net worth decreased by $6.1 trillion in the April-June period, or 4.1%, after falling about $147 billion in the first quarter, a Fed report showed Friday. The value of equity holdings slumped $7.7 trillion, while the value of real estate held by households rose by $1.4 trillion.

Financial Times, Reuters

September 8, 2022

European Central Bank president Christine Lagarde has suggested that policymakers could make further increases to eurozone interest rates after the bank increased rates in line with expectations by 75 basis points. “If the data on our meeting-by-meeting exercise review suggests that we should take a high hike of our interest rates, we will do so,” Lagarde said.

Sky News

September 12, 2022

The UK economy grew by just 0.2% during July, with both industrial output and construction activity going into reverse, newly released data from the Office of National Statistics show. An additional public holiday this month to mark the funeral of Queen Elizabeth II could be enough to tip the economy into a third-quarter recession, analysts from Deutsche Bank and Nomura say.

Capital Economics

September 9, 2022

Early indicators suggest that China’s economy was even weaker in August than it was in July, when the rebound from the Shanghai lockdown prematurely fizzled out. And constraints faced by policymakers – some they have little control over, some self-imposed – mean that the economy is likely to remain very weak to the end of the year.

Barron’s

September 12, 2022

QT is as ambitious as its impact is uncertain. At full-throttle, the pace of balance-sheet tightening will be much more aggressive than in the past and come at a time when interest rates are rising quickly. What could go wrong? Potentially, a lot, suggests Joseph Wang, a former trader on the Fed’s open-market desk. You’re going to get volatility. Markets haven’t priced in just what that means. We will likely see higher fixed-income yields.

Barron’s

September 12, 2022

For Douglas Peta, chief U.S. investment strategist at BCA Research, the numbers suggest that a fed-funds terminal rate above 4% will be necessary to corral inflation. The pace of price rises will slow to 4% of its own accord, regardless of what the Fed does, he predicts. Trimming inflation to 2% from 4% will be more difficult. Once markets realize that this will require a higher terminal fed-funds rate than the 4% they anticipate, stocks and bonds are apt to correct.

Financial Times

September 7, 2022

Lael Brainard, vice-chair of the Federal Reserve, has said that in order to bring down inflation, interest rates must be left high enough to curb economic activity “for some time.” The central bank needs to see “several months of low monthly inflation readings” before it considers relaxing its efforts to cool the trend, she said.

Financial Times

September 6, 2022

In order to bring down inflation, interest rates must be high enough to change “inflation expectations,” said Thomas Barkin, president of the Federal Reserve Bank of Richmond. “The destination is real rates in positive territory and my intent would be to maintain them there until such time as we really are convinced that we put inflation to bed,” Barkin said.

Bloomberg

September 10, 2022

The five-year expected inflation rate signaled by yields on Treasury Inflation-Protected Securities has dropped below 2.6% from a 3.76% high in March, possibly indicating bond traders support the Fed’s policy on taming inflation. “If inflation comes down to what breakevens are pricing today, then a soft landing is possible,” says Rick Rieder, BlackRock’s CIO of global fixed income.