... or what recently caught my attention in several points:
1) Nick Timiraos, the unofficial FOMC’s mouthpiece has just confirmed... what I wrote in yesterday's market review (link). In an article in the Wall Street Journal titled "Fed Tiptoes Toward Dialing Back Key Channel of Monetary Tightening", Nick Timiraos writes that "Fed officials are to start deliberations on slowing, though not ending, that so-called quantitative tightening as soon as their policy meeting this month. It could have important implications for financial markets" (link).
For example, the main scenario according to J.P. Morgan is for the FOMC to establish a preliminary plan at its meeting in January, communicate it to the market in mid-February (via minutes), formally adopt it at the meeting in March and reduce Treasury runoff from April 1 to $30 billion per month (from the current $60 billion).
2) Polish shares have been behaving surprisingly poorly in recent days, WIG20USD is already down 8.9% from the peak on December 27.
WIG20USD is very sensitive to global risk-off/risk-on because it combines: (i) cyclical industries, (ii) a cyclical currency, (iii) high beta of Polish shares, as well as (iv) sometimes a potential mean-reversion on Polish shares.
The question is whether we currently have another correction (Figure 1) like in Q3 2023 and Q1 2023?
Or the end of market advance, then correction and transition to a more or less flat market in Poland, as was the case in 2019... during the first rate cuts by the FED in the previous cycle (Figure 2).
If the FED cuts rates at its meeting in March this year, we are now 2 months before the first rate cut. In 2019, the first cut took place on July 31, 2019. In both charts I marked the first rate cut in the cycle.
Rate cuts are usually not good for the financial sector (and the financials have approximately a 48% share in MSCI Poland). This does not necessarily mean nominal declines (Polish shares were flat in 2019), but it may mean relatively worse behavior compared to indices, e.g. with a heavy weight of technology sector, which naturally love lower interest rates.
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