At last week’s FOMC meeting, the Fed reinforced its accommodative policy stance through a fresh set of interest rate and economic projections. The committee maintained the federal funds rate target range of 0-0.25% and the current pace of asset purchases at $120bn per month. Notably, the Fed materially upgraded its real GDP projection from 4.2% to 6.5% y/y in 4Q21. However, only a slight improvement was applied to 2022, while 2023 growth was downgraded. These estimates reflect the Fed’s view that growth will accelerate this year and moderate thereafter. Additionally, core and headline PCE inflation were revised higher to 2.2% and 2.4% y/y in 2021. Both are expected to cool to 2.0% next year, indicating that the Fed will tolerate higher realized inflation in the short term, but views it as transient. As illustrated in the chart, the outlook for strong growth and higher inflation has led investors to pull forward rate hikes, with futures markets now predicting at least one hike in 1Q23. Interestingly, even after the new median Fed dot plot signaled zero rates through the forecast period, the markets are pricing in an even more hawkish policy response in 2023. Furthermore, since the Fed meeting, the
10Y Treasury yield has surged over 1.7% as of Friday with the 1mo OIS curve pricing consistently with the uptick in the Treasury market. While the Fed officially continues to
project no short term-rate hikes before 2024, markets are increasingly pricing in higher growth and inflation – a sign that investors should positions themselves for a steepening yield curve.
JP Morgan
Happy Monday. Good Luck out there this week.
Global Spotlight
An EU summit on Turkey relations. Political interactions between Turkey and the European have intensified in recent weeks ahead of a March 25-26 EU summit where the bloc will discuss its relations with Ankara. According to EU diplomats, Brussels may decide against imposing any immediate additional sanctions against Turkey to leave room for resolving their various political disputes.
A visit to China and South Korea by Russia’s foreign minister. On March 22, Russian Foreign Minister Sergei Lavrov will visit China for a trip meant to showcase Russia’s links to Beijing at a tense moment in U.S.-China relations. On March 25, South Korea will then host Lavrov for a visit beginning March 25 to mark the 30th anniversary of bilateral relations, delayed from 2020 due to the COVID-19 pandemic.
Israel’s fourth national election in two years. With health data indicating a decline in infections and vaccinations now reaching over 50% of the population, Israel is positioned to become one of the first countries to tame the COVID-19 pandemic and reap the economic benefits.
Another round of debt talks between Argentina and the IMF. Argentine Economy Minister Martin Guzman will hold two days of talks with the International Monetary Fund (IMF) in Washington on March 23-24 to discuss renewed IMF support for a long-awaited economic stabilization program.
Stratfor.com
Economic Calendar
Briefing.com has a good U.S. economic calendar for the week. Here are the main U.S. releases.
Key Reports
- Durable goods orders
- Core Inflation
Briefing.com
Last Weeks Numbers
Review Last weeks numbers here.
Today we are going to review Jill Mislinkski’s impressive chart from advisor Perspective. The S & P 500 bounce around a 60 point range and dropped on Friday afternoon. Last week was triple witching week. The index is up about 5% YTD.
Earnings
Source I/B/E/S data from Refinitiv
Aggregate Estimates and Revisions
- 20Q4 earnings are expected to be 4.1% from 19Q4. Excluding the energy sector, the earnings growth estimate is 8.0%.
- Of the 498 companies in the S&P 500 that have reported earnings to date for 20Q4, 79.1% have reported earnings above analyst expectations. This compares to a long-term average of 65% and prior four quarter average of 76%.
- 20Q4 revenue is expected to be 2.7% from 19Q4. Excluding the energy sector, the growth estimate is 6.0%.
- During the week of Mar 22, five S&P 500 companies are expected to report quarterly earnings.
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