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February 3rd - Todays interest rate hike was a difficult decision for the Reserve Bank of Australia (RBA), as it had just cut rates last August. The RBA had previously bucked the trend of other economies, deliberately keeping rates low for an extended period to prevent soaring unemployment. Now, it becomes the first major central bank to return to a rate-hiking path since the pandemic began. Some economists had predicted that the RBA might wait for more data, given recent slowing monthly inflation data and the strengthening Australian dollars potential to "cool" the economy. Domains chief economist, Nicola Powell, stated that while the rate hike would reduce borrowers ability to finance their homes, it would also weaken the upward momentum in the housing market. Assuming lenders fully pass on the cost of the rate hike, a borrower with a $600,000 loan would see their monthly payment increase by approximately $90. The focus now shifts to the tone set by Governor Bullock at the post-meeting press conference. Economists are currently uncertain whether the RBA will continue with rate hikes or if this is a one-off event.February 3 - The Reserve Bank of Australia raised interest rates by 25 basis points to 3.85%, in line with market expectations, after holding rates steady for three consecutive days.The Reserve Bank of Australia (RBA) set its interest rate at 3.85% on February 3, in line with expectations and down from 3.60% previously.On February 3rd, DBS Bank senior economist Radhika Rao stated in a report that the Indian market is poised for a rebound following the announcement of the US-India trade agreement. She noted that high tariffs were a major factor dragging down market sentiment over the past quarter, while the agreement is "undoubtedly a significant boon to the real economy and exports," and will also boost financial market sentiment. Rao added that textiles, gems and jewelry, engineered products, leather, and chemical products are expected to be the main beneficiaries. She wrote that considering the punitive tariffs previously imposed for purchasing Russian oil, the reduction from 50% to 18% effectively brings Indias tariff levels close to those of most Southeast Asian countries.According to sources, Republican leaders in the U.S. House of Representatives are planning to vote next week on a key bipartisan housing bill.

Global Macro and Crude Oil Analysis - Today, the Market Feels Even More Capitulatory

Daniel Rogers

May 12, 2022 10:58

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Global Macro

Inflation may have declined from its prior record, but the sluggish rate of decline will further increase fears that, despite statistics and the CPI peak, the Fed still has a problem with persistent inflation.

 

Inflation in the United States almost definitely peaked in March, but a little decline in April statistics does not suggest the inflation menace has passed. If anything, the concentration on data is generally intensified on the way down.

 

Still, the core CPI climbed by 0.57 percent month-over-month in April, considerably above expectations and the highest pace since January; the market will be concerned that the Fed's hawkish tone will not soften, and it will want to continue with 50bp rate hikes. It will also keep rumors of a 75bp rate hike alive in the market, despite the Fed's efforts to stifle this chatter in order to avoid a severe market shock.

 

Today, the markets are even more despondent, as they are confronted by three significant difficulties. First, investors will need to account for a longer Fed raising cycle. Two, the danger that the Fed may become excessively hawkish, so stifling growth and creating a recession. And third, traders still must navigate QT.

 

For the greater part of a decade, stock pickers have relied on quantitative easing (QE), and now, without it, nobody knows where equities will settle; therefore, traders will continue to conduct the reverse of QE trades until proven differently.

 

In the interim, there is always the relief rally crew, but even if volatility rolls in, stocks may not experience a significant bounce. "TINA" no longer applies.

Fundamental Analysis of Oil

Oil prices rose as the European Union argued over a crude oil embargo against Russia, while fuel supplies fell predictably ahead of the US summer driving season.

 

However, the favorable downward bend in China's covid curve looks to have reversed the trend for oil markets this week, at least until oil traders experience another mood swing toward a bearish outlook.

 

As the Fed works to reduce inflation, a US recession is practically certain. Rates of interest are an extremely blunt instrument, and QT's tightening of financial conditions is a prescription for economic calamity.

 

Until we see substantial policy support from China or authorities embrace an alternative strategy to Covid (which seems highly improbable), oil prices could stay constrained in the near future.

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