*During a Wall Street Journal Live event streamed on Twitter, Fed Bank of Cleveland President Loretta Mester said “the case is very compelling that we remove accommodation.”*
Though Fed fund futures are predicting nearly four rate hikes this year, a seismic change from a few months ago, longer-term rate expectations haven't budged sharply.
U.S. interest rate pricing is peaking at 1.5% by the third quarter of 2024, far lower than previous U.S. rate tightening cycles.
*Comments:*
“Wall Street was worried that a much hotter inflation report could have not only cemented four Fed rate hikes this year, but potentially made the May FOMC meeting a possibility for when the balance-sheet runoff could start,” said Edward Moya, senior market analyst at Oanda, referring to the Federal Open Market Committee.
“We’ve been saying for a while that we didn’t expect the peak in one-year inflation numbers until early 2022 and further supply chain disruptions from the omicron variant strengthen that case. But the more important question right now is the exact timing of when inflation might start to slow, since ultimately that will likely determine how aggressive the Federal Reserve ... will be,” LPL Financial asset allocation strategist Barry Gilbert said in a note.
“Fears about higher and persistent inflation have been well telegraphed in recent months. Today’s rise in the rate of inflation falls within investors’ expectations,” said Richard Flynn, managing director at Charles Schwab U.K.
“Bond markets are currently pricing in about a 90% probability that the Fed delivers four rate hikes in 2022, and today’s inflation data should not dissuade the central bank from delivering the first of those hikes in March,” said Jai Malhi, global market strategist at J.P. Morgan Asset Management.
*Omicron is yesterday's story now. The market isn't moving on Omicron but on earnings, Fed and economic data.*
Growth and technology stocks have been staging a comeback this week, with investors watching a variety of metrics to decide whether to buy the rally or brace for more declines.
*Also on the watchlist for this week is the unofficial kick-off of the fourth quarter earnings season with JPMorgan Chase & Co, Citigroup Inc and Morgan Stanley due to report their results on Friday.*
*Earnings may exceed expectations and that is what is keeping investors active despite knowing that the Fed is going to start tightening in the next several months. You'll also see less commentary on earnings calls referencing supply chain constraints this season.*
The healthcare index, was weighed down by shares of drugmaker Eli Lilly and Biogen throughout the day.
*The U.S. government Medicare program said that while it plans to cover Biogen's Aduhelm Alzheimer treatment it will require patients to be enrolled in a clinical trial, limiting access to the medication. This could also impact Eli Lilly, which is developing similar drugs.*
*Not all major central banks are tightening policy though. In China, a softer than expected reading on prices has drawn bets on policy easing. Five-year Chinese government bond futures rose eight ticks to an 18-month high before trimming gains. Yuan gains were also capped.*
*Oil prices hit two-month highs on Wednesday on tight supply as crude inventories in the United States, the world's top consumer, fell to their lowest since 2018, and as the dollar weakened and worries eased about the Omicron coronavirus variant.*
U.S. crude inventories fell 4.6 million barrels last week to 413.3 million barrels, their lowest since October 2018, the Energy Information Administration said. Analysts had forecast in a Reuters poll a 1.9 million-barrel drop.
U.S. crude inventories have dropped for seven consecutive weeks, and overall inventories have been tightening across the globe as major producers struggle to increase supply even as demand rises despite rising cases of Omicron.
The falling dollar was the main driver of higher oil prices. A weaker greenback makes dollar-denominated oil contracts cheaper for holders of other currencies.
By: via @AlliesFin Serve Stock Market
