A patient Fed signals that no further hikes are needed (for now).

With a decidedly dovish twist, at the January meeting the Fed signaled that the current target for rates (2.25%-2.5%) is appropriate for now. Any mention to further rate hikes was removed from the press statement. The FOMC will be patient in assessing whether and how to revise its target.

Highlights:

  • With a decidedly dovish twist, at the January meeting the Fed signaled that the current target for rates (2.25%-2.5%) is appropriate for now. Any mention to further rate hikes was removed from the press statement. The FOMC will be patient in assessing whether and how to revise its target.
  • The committee broadly confirmed its positive outlook for the economy, but with somehow less conviction; the pace of growth has been downgraded from “strong” to “solid”. Such a swing only six weeks after the December meeting was motivated by the sustained tightening in financial conditions and clearer evidence of slower global growth.
  • Another big change concerned the balance sheet rundown: after stating in December that it was on “auto pilot”, the Fed is now prepared to adjust it in light of economic and financial developments. According to Chair Powell, the bigger than expected demand for reserves by financial intermediaries requires that the shrinking of the balance sheet end sooner than expected.
  • Summing up, another rate hike this year appears now more likely than two. Yet, given the Fed’s strongly signaled willingness to revise its target rate in line with data (which are less clear cut than a few months ago) the uncertainty around the prediction is much bigger than in the past.

Download the full publication below

A PATIENT FED
SIGNALS THAT NO FURTHER HIKES ARE NEEDED
(FOR NOW).

RELATED INSIGHTS

COVID-19 FACTS & FIGURES
According to the IMF’s Managing Director, strong international cooperation on coronavirus vaccine could speed up the world economic recovery and add $9 trillion to global income by 2025. A WHO trial found that Remdesivir, Hydroxychloroquine, Lopinavir and Interferon have little or no effect on hospitalized Covid-19 patients. Gilead Sciences has questioned the findings of the WHO study saying data appeared inconsistent.
INCORPORATING QUANT SIGNALS INTO EU EQUITY SECTOR/STYLE STRATEGY: MAINTAIN A TILT TO CYCLICALS AND VALUE
We present an update of our proprietary equity valuation tool, based on quant models. It provides indications of over- or undervaluation for different sectors and styles of European equities, which is further enriched by our qualitative analysis. Currently, among European equity sectors, financials, energy, telecoms, and autos look undervalued while Pharma, utilities and software appear overvalued.
CHINA’S RECOVERY CONTINUED BUT A BIT SOFTER THAN EXPECTED
China's economic recovery continued in Q3 2020, although a bit softer than expected. Real GDP growth rose to 4.9% yoy, slightly below the Reuters consensus expectation of 5.2% yoy, but still a substantial upturn from the 3.2% yoy in Q2. On a quarterly base, growth dynamics softened to 2.7% qoq, after 11.7% qoq and -10% qoq in the two previous quarters.