Central Banks decision week AND More....

1. We are witnessing the flattest yield curve in more than 3 decades now. This indicates that the market is pricing in a fed hike sooner than expected. On the other hand if inflation takes a pause then a quick rate hike may not be warranted.

2. Fed increased the guidance for a 3 rate hike stance. This came as a surprise for the markets, given the rise in Omicron cases and falling consumer sentiment. The Fed is driven to control inflation within the 2-2.5% range, and they are poised to somehow push the real yields higher relative to the developed nations.

3. The Bank of England on the other hand became the first central bank to raise rates among the G7 nations. This comes at a time when the UK reported the highest daily rise in covid cases. GBP pushed higher with the rise in benchmark rates. Furthermore, we saw a massive rise in the treasury yields across the curve. So the move is clearly a step to combat the decade high inflation of 5%.

4. China's strengthening currency is a signal of trouble the economy is into. The only major currency to have outperformed USD is CNY. But why? Positive real yield and massive exports. Credit growth in China is at its lowest, and thus companies may face difficulty in servicing their overseas outstanding balances.

5. What's more surprising is the rise in the dollar even when they recorded decade high inflation numbers. Dollar has been rising against all major currencies, in fact even against economies which have started raising rates. So what's driving the rise? Is it the statutory year end demand of dollars?

6. The powerful restart of economic activity resulted in severe inflation pressures. Most DM central banks did not respond. This was the new nominal in action and marked the start of the regime shift. Nominal government bond yields edged up, but real yields stayed historically low amid rising inflation and supported stocks. Corporate earnings surged as the restart rolled on, driving outsized equities gains.

7. The rate hikes by the Fed were guided by the full employment target. But how does the Fed define full employment? Unemployment numbers have come back to pre covid levels but the labor participation rate is still low. As people have stopped looking for jobs, this may well be the reason for lower unemployment rates.

8. The Indian edtech giant, Byju, is planning a SPAC listing which would value it at $40 Bn.

9. We have witnessed increasing participation In the RFR market. 45% of the USD Swaptions market is now traded versus SOFR on IDB SEFs. 100% of the GBP, JPY and CHF XCCY markets vs USD are now traded RFR vs RFR.

10. Interesting Charts: