The Fed's Hawkish Tone Hits the Bond Market Hard

Real Vision: Finance & Investing

Real Vision

Business News, News, Investing, Business

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🗓️ 23 March 2022

⏱️ 40 minutes

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Summary

Federal Reserve Chair Jerome Powell said on Monday, “Inflation is much too high,” noting that the Fed would continue to raise interest rates until inflation is under control. And St. Louis Fed President James Bullard reiterated his view that U.S. monetary policy must be tightened quickly to put a stop to upward pressure on inflation that’s already too high, repeating his call for a fed funds target rate above 3.0% this year. Meanwhile, a selloff in government bonds intensified on concerns that rising inflation will drag the nation’s economy into recession. The yield on the 10-year U.S. Treasury note hit its highest level since 2019, as the Treasury market nears the end of what could be its worst quarter since 1973. Altogether, it looks like the hiking cycle could be more aggressive than previously forecast. But what if we have inflation all wrong? Could it be, suggests Vincent Deluard, director of Global Macro Strategy at StoneX Group, that in a service-oriented economy “inflation” is just another word for “growth”? Deluard joins Warren Pies to discuss inflation and growth, monetary policy, and the likelihood of an inverted yield curve in the very near future. Want to submit questions? Drop them right here on the Exchange: https://rvtv.io/3qrBE5m Learn more about your ad choices. Visit podcastchoices.com/adchoices

Transcript

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0:00.0	Welcome to the Real Vision Daily Briefing. It's Tuesday, March 22, 2022. I'm Warren Pies,
0:11.6	founder and chief strategist at 314 Research. Today, I'm joined by my good friend,
0:17.3	Vincent Deliward, global macro strategist at Stone X. Vincent, how are you doing?
0:23.6	I'm great. I'm very happy to be here, so it's going to be fun.
0:27.4	Yeah, I'm excited to talk to you in case you weren't aware. This is the Daily Briefing,
0:33.7	so we start with what's going on in the markets today and stocks were up again, bonds down,
0:40.6	yields up, commodities down more or less. This is kind of the continuation of a move we've
0:45.6	seen over the last week is the way I would look at it. I've really expanded out to that last
0:52.9	week's move. I've really struggled to understand what's behind this move, and I know like me,
0:59.0	you're leaning to the bearish side on the markets, trying to find evidence of reasons to get
1:07.1	bullish, and there's an old saying in markets, nothing like price to change sentiment, and that's
1:11.5	what it feels like to me. It feels like price has changed sentiment. Just a week ago, everybody
1:15.9	was giving you all these reasons to be out of the market to raise cash. In today, it's all about how
1:21.2	the economy is strong. We can handle higher interest rates, yada yada. There have been a number of
1:26.5	technical signals that we've called threat thrusts that have fired over the last few days. The way we
1:31.0	measure the 314, we haven't seen that, but we're watching it and it has been close. But interesting
1:37.2	chart today, we did break above the 200-day moving average on the S&P 500. A chart that we're going
1:43.5	to show here at 314, we kind of broke apart every combination of moving averages to look at
1:48.8	which ones really matter in the sharp ratio for just following a simple strategy to get in the
1:53.0	market when you're above the 200-day, or the moving average of that duration that we're looking at,
1:58.4	and out of the market below that moving average. What you can see in this highlighted box is that
2:03.7	this 200-day moving average area, about 150 to 200 days, is a really historically key moving
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