Bank of Japan ended the NIRP (negative interest rate policy).
FED confirmed easing and started “almost everything melt-up”.
Key takeaways:
(i) a goldilocks-type scenario can be expected in Q2/maybe even in Q3 with one caveat: the risk of higher inflation in the US in Q2 may spoil the party,
(ii) in its latest economic projections (from March 20), the FED increased GDP growth in 2024, lowered the unemployment rate and raised the core inflation - which, according to the FED, allows for 3 rate cuts in 2024!
In other words.. higher inflation + higher growth + lower unemployment = lower interest rates,
(iii) The initial market reaction after the announcement of the FOMC decision: practically all asset classes up, the dollar down - but then the market realized that too high inflation in the US does not allow for the full goldilocks scenario: the FED has its hands tied by higher growth and higher inflation - which generally means that RoW (rest of the world) is going to out-dove the FED - hence the strong dollar... spoiling the party a bit...
(iv) If the markets survive the risk of higher inflation in Q2 in the US - the whole year could rhyme a bit with 2019, when we also had the beginning of an easing cycle with a total of 3 interest rate cuts,
(v) In 2019: S&P500 +28.9%, Nasdaq100 +37.96%, but MSCI Emerging Markets +18.4%, including MSCI Poland -5.33%,
(vi) in 2024 (YTD)… so far so good… S&P500 +9.74%, Nasdaq100 +9.0%, but MSCI Emerging Markets +1.37%, including MSCI Poland +2.0%.
Figure 1 shows the percentage change of the S&P500, Nasdaq100 and gold over the past week.
Figure 2 shows the future contracts for 10- and 2-year US treasury bonds (during the week, the yield on 10-year bonds fell 10 bps; and on 2-year bonds 13 bps).
Figure 3 shows the percentage change in currencies after the decision of the Bank of Japan and the FED. Interestingly, China has joined the devaluation “game” (the yen is too weak), allowing the USD/CNY to increase significantly above 7.20 - what is being considered as readiness by Chinese officials to let the currency devalue... as Beijing had been defending 7.20 level for months – so not anymore.
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