Danske Research Team
Danske Bank A/S
Although the coronavirus has spread to more countries and equities are now more than 7% down, the Fed has yet to move in a more dovish direction. On Tuesday, Fed vice chair Clarida may have opened the door slightly for a change in direction in the near future if the situation deteriorates further, as he said the Fed is looking at monetary policy on a meetingto- meeting basis. The question is how much will it take for the Fed to react? We compare the current situation with the Fed's U-turn in early June 2019 when Fed chair Powell said that the Fed will ‘act as appropriate to sustain the expansion' at the ‘Fed listens' event, which eventually led to the first insurance cut in July.
Our key takeaway is that looking at nearly all metrics, the economy is in worse shape than in June 2019 (see table below and charts next page). This means we should expect the Fed to shift soon in a more dovish direction and investors are right in pricing in cuts, in our view. The Fed's blackout period ahead of the 17-18 March meeting begins on 7 March and since none of the most important FOMC members (as of today) is scheduled to speak before, the dovish shift may not occur until the meeting (in the statement or at the press conference). Otherwise we believe a shift will occur after the March meeting, mirroring the radical U-turn the Fed made in early January 2019 after the hawkish meeting in December 2018 amid a longer risk-off period. Our base case is still a rate cut in April.
This publication has been prepared by Danske Bank for information purposes only. It is not an offer or solicitation of any offer to purchase or sell any financial instrument. Whilst reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and no liability is accepted for any loss arising from reliance on it. Danske Bank, its affiliates or staff, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives), of any issuer mentioned herein. Danske Bank's research analysts are not permitted to invest in securities under coverage in their research sector.
This publication is not intended for private customers in the UK or any person in the US. Danske Bank A/S is regulated by the FSA for the conduct of designated investment business in the UK and is a member of the London Stock Exchange.
Copyright () Danske Bank A/S. All rights reserved. This publication is protected by copyright and may not be reproduced in whole or in part without permission.
Recommended Content
Editors’ Picks
AUD/USD stays defensive below 0.6650 amid China worries
AUD/USD seems vulnerable below 0.6650 in Asian trading on Tuesday, undermined by mounting worries over China's economic slowdown. The Aussie shrugs off small rate cuts by the PBOC and a subdued US Dollar. Pre-US earnings results caution also weighs on the pair.
USD/JPY keeps losses below 157.00, as risk-off mood returns
USD/JPY remains under pressure below 157.00 early Tuesday. The Japanese Yen stays bid as risk-off flows return in the Asian session, sustaining the US Dollar weakness-driven downside in the pair. The pair looks to Japanese verbal intervention and mid-tier US data.
Gold price moves away from over one-week low, climbs back above $2,400 mark
Gold price extended its recent corrective slide from the record high touched last week and fell to a more than one-week trough on Monday. US President Joe Biden's withdrawal from the 2024 Presidential election increased the chances of Donald Trump becoming the next US President, raising hopes of a looser regulatory environment.
This week could be explosive for ETH: Ethereum ETFs to debut in the US on Tuesday
Ethereum is down nearly 1% on Monday as the SEC confirmed via its website on Tuesday that it has given the final approval for spot ETH ETFs. Considering the ETH ETF launch and the upcoming Bitcoin Conference, this week could prove crucial for Ethereum.
Earnings review
In recent years, the focus has been on the Magnificent 7, particularly Nvidia’s monster earnings reports, which have dominated the market. While Nvidia’s results are still extremely important for overall sentiment, there is a hope that sales growth and revenues can pick up across a broad range of global markets and sectors.