SignalPlus宏观分析特别版：降息还是加息？

Although the performance of risk assets in the past week was still quite good, the trend of slowing inflation last week was significantly disrupted, with both CPI and PPI data significantly exceeding expectations. On the other hand, U.S. economic data remains strong. The University of Michigan consumer confidence index rose for the third consecutive month, reaching the highest level since 2021. Final demand PPI was also higher than expected. The core PPI increased by 0.5% month-on-month, and the overall PPI increased month-on-month. Growth of 0.3% was driven entirely by services sector inflation. In addition, ongoing geopolitical conflicts have led to higher global transport prices, with commodity prices likely to rebound in the coming months, posing further challenges to the slowing inflation narrative.

In addition, the UM Consumer Confidence Index rose to 79.6 in February, the highest level since July 2021. The 12-month inflation expectation rose to 3.0%, while the long-term inflation expectation remained at 2.9% for 4 consecutive months.

The strong economic data led the always outspoken Larry Summers (former Treasury Secretary) to say on Bloomberg TV that there is still a certain possibility (15%) that interest rates will be raised at the next meeting.

Summers told Bloomberg TVs Wall Street Week with David Westin that theres a chance - maybe a 15 percent chance - that the Feds next move will be to raise interest rates rather than lower them. The Fed is going to have to be very cautious.

Source: Bloomberg TV

While he added a caveat to that comment, saying one shouldnt over-interpret a single number of data, he said there were already signs of a slight paradigm shift with rising prices for core services and an explosive super core inflation number in January:

Its always a mistake to over-interpret one-month numbers, especially in January when its difficult to calculate seasonal changes, Summers said. But I think we have to be cognizant of the possibility of a small paradigm shift.

Thats not the only troubling sign, he said. Another key issue was core service prices (which exclude food and energy costs), excluding housing prices driven up by rising wages, he said of the indicator. It looks like super core inflation was really explosive in January, Shi said.

Source: Bloomberg TV

On the other hand, former St. Louis Feds James Bullard, a well-known dove in previous cycles, said he believes the Fed should start cutting interest rates in March as a precautionary measure to prevent restrictive policies from limiting economic activity in the second half of the year. and the risk of subsequent need for larger and faster interest rate cuts.

I think they should start moving, he said after speaking at the National Association for Business Economics conference in Washington. The smarter approach would probably be to start early but take your time.

He also said, Im worried about going into the third quarter facing policy rates that are too high, why not act now? You dont have to explicitly say six [rate cuts], just say, Were making this based on the data we have. One action, and we dont guarantee more. — James Bullard, The Wall Street Journal

As we noted in our 2024 Economic Outlook, we are more in the Summers camp, arguing that inflation risks are more stubborn than markets expect, challenging the current rate cut narrative and adding to the “no landing” scenario (i.e. the economy is too hot). Too strong) is brought back into our view. In fact, we have started to see market easing expectations for the Fed and Bank of England withdraw by about 50 basis points from the extremes in January, while easing expectations for the European Central Bank have also dropped by 25 basis points from January.

Taking a step back, the global economy does look very strong. The global PMI is hovering around 50 and has recently shown signs of recovery, while the job market in most developed economies remains strong.

At the same time, risk pricing remains flawless, with macro asset volatility returning to pre-pandemic lows except for fixed income, risk premiums priced into macro asset classes being very small, and credit spreads narrower than in 2019.

In addition, at a time when investor bullish sentiment on fixed income is at its highest level in years, G4 central banks will further reduce their balance sheets (quantitative tightening) of US$3 trillion in 2024, cutting post-epidemic debt by about 80%. Incremental liquidity, and at the same time, even as our economies remain in expansion, cash borrowing demand as a percentage of bond market capitalization in the U.S., Europe and the U.K. will hit record highs in 2024 and, if the economy does eventually slow, It will only improve further.

Speaking of fiscal generosity, an interest statistic from the Financial Times shows that a record share of the worlds population will vote in national elections in 2024, with political candidates likely to make generous commitments to various spending campaigns and pledges to their respective The treasury exerts pressure on fiscal spending.

Regardless, the main takeaway is - there will be a lot of bond issuance in 2024 and beyond, which may give interest rates some support.

The U.S. stock market fell slightly from its historical high. After the SMCI tripled in 4 weeks, it plunged 20% intraday last Friday. Nvidia will release its earnings report on the 21st of this week. Based on the markets enthusiasm and expectations for AI, the The companys earnings results could determine overall stock market risk sentiment in the month ahead.

On the cryptocurrency side, spot ETFs saw net inflows of $2.3 billion last week, bringing net inflows to $5 billion since launch. This figure exceeds the net inflows of benchmark ETFs such as SPY (SPX ETF), which is undoubtedly a remarkable achievement. .

Coinbases financial report showed further positive signals, with retail trading volume increasing by 164% from the previous quarter, while overall trading volume increased by 103%. While theres still a long way to go before retail participation returns to its late-2021 peak, its still heartening to see some mainstream interest return as we emerge from the long winter.

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