US Fed
So the Fed raised the rates, as expected. Kevin Warsh came through on his hawkish promises, albeit at something of a lag. The evidence of reacceleration in the US economy has been evident for some time.
The broad summary of projections lifted growth, and lowered unemployment, whilst tickling up the inflation expectation, even as it returns towards target over the next few years (which looks unlikely if the AI capex boom, and large fiscal deficits, continue).
It is likely that there are several more hikes to go. The RBA will also follow shortly, we think, at the back end of this month.
In terms of “state of play” we can see BEs are still fairly well behaved. The rates hikes ensure that remains the case, I suppose. Markets are still strong, commodities likewise, and the TWD has been gradually rising. So the sell America trade hasn’t really continued, and it seems unlikely that hikes will tank the economy. Given skinny equity risk premia, we still see risk to shares, particular given the US-Iran conflict is still with us.
Credit spreads are off their recent lows, but nothing dramatic there yet either. Markets are telling us things are fine, so far.
A quick look back at the US retail sales data out a couple days prior. Have a look at the second row, far right, 1.21% MoM ex auto and gas. That’s quite strong. The US consumer continues to handle the slowing average hourly earnings (AHE) wages data, and the cost of living affordability issues.
China
In stark contrast to the US data, China continues to print very depressed numbers.
Only a few weeks ago I’d made comment that perhaps iron ore could get some support from China finding a floor. But looking at the total social financing data (top left), I walk that view back somewhat. It remains very grim.
Just as well for the commodity complex overall that we have the AI boom.
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