Fed to hike sooner

Clifford Bennett, Chief Economist at ACY

23.09.2021 12:30 pm

#stock

The two big positives at the moment.

Fed result in, and a bounce that stalls.

As we have been forecasting, the Federal Reserve itself is now adjusting its commentary suggesting interest rate hikes will be sooner than previously thought. We knew what they would be thinking before they did, but they are still dangerously behind the curve.

Makes one wonder what the RBA will do with its no hikes for years oddly bizarre and inappropriate policy? As the rest of the world begins hiking.

No doubting this has been an impressive bounce in US/Australian stocks, but given the scale of the previous decline, it has been difficult to define a "where am I wrong point" in the rally. We can now do this a little better. The bearish warnings remain in place for now.

Gold losing momentum for the moment.

Could drift for a while, before overall bullish up-trend resumes.

US500 certainly a good Fed expectations rally, but stalling on the day in NY.

A move above 4430 would potentially turn this whole thing around for the US.

That's the price action indicators. More discussion below.

AUS200 continue to see this as a market that has a particular vulnerability.

Two World Positives.

Firstly, at some stage the Delta surge will reach a herd immunity level as did the Spanish flu. It will remain and be a problem, but not beyond our capacity to deal with. Interestingly, more people have tragically died in the USA of covid-19, than of the Spanish flu. Though the US is now more than three times larger, it does provide a historic perspective. To think this process will run its course in anything less than another 3-5 years though, could be an error.

Secondly, that the underlying natural economic state of many nations such as the US and Australia remain weak, will contribute to the Fed and RBA continuing to sit on their hands for longer than preferable. This will substantially contribute to the many asset bubbles now forming. Nevertheless, for short term sentiment traders any further stock market upside resulting will be an opportunity.

If that does not sound like such great news, these are the two positives that we can glean in terms of potential equity market activity. There is a lot pointing in the other direction as the data trend of the US and Australia both continue to roll over.

It makes for a challenging read on markets from here.

In a nutshell, I believe, that with the Evergrande news and the Fed speak of yesterday, this is a situation of all the good news there is going to be, is already out there. That leaves markets vulnerable, except for that long term damaging, though celebrated in the short term, near zero interest rates.

Above 4430 resistance in the US500, would be an encouraging signal for the bulls. In the meantime, I feel we have to be on our toes for the potential of stocks to roll over. In line with the economics of the moment. To significantly lower levels.

Australia is by no means out of the woods. Our economy is stalling, without the bounce back potential almost everyone is laying claim to. Regarding AUKUS, many other people, no less than former Prime Ministers have begun to speak up. Suggesting similarly, that this move has regional and European downside. This is of vital importance to our economic outlook, as our level of acceptance among our neighbours is perhaps the most crucial factor in our long term economic and general prosperity.

Australian equity rallies remain suspect in my mind.

Clifford Bennett