The Bank of England raised rates. Here is their assessment:
In the MPC's central projections in the February Monetary Policy Report, published before Russia's invasion of Ukraine, UK GDP growth was expected to slow to subdued rates during the course of this year. This in large part reflected the adverse impact of the previous, already large, increases in global energy and tradable goods prices on UK real aggregate income and spending. As a result, a margin of spare capacity was projected to open up and the unemployment rate to rise to 5% by 2025.
There's an old economic adage, "The cure for high prices is high prices." Rising prices lower demand, which, as the bank notes, eventually increases supply. The Fed hasn't mentioned this same theory or idea in any of its public statements. It will be curious to see if we see it in the minutes when they are released.
The Fed notes that the US economy is very strong. From yesterday's press conference:
Economic activity expanded at a robust pace last year, reflecting progress on vaccinations and the reopening of the economy, fiscal and monetary policy support, and the healthy financial positions of households and businesses. Indeed, the economy has shown great strength and resilience in the face of the ongoing pandemic.
Fortunately, health experts are finding that the Omicron variant has not been as virulent as previous strains of the virus, and they expect that cases will drop off rapidly. If the wave passes quickly, the economic effects should as well, and we would see a return to strong growth.
He later commented that the labor market is very strong as well:
The labor market has made remarkable progress and, by many measures, is very strong. Job gains have been solid in recent months, averaging 365,000 per month over the past three months. Over the past year, payroll employment has risen by 6.4 million jobs. The unemployment rate has declined sharply, falling 2 percentage points over the past six months to reach 3.9 percent in December.
Overall, this is a correct assessment. The wild card right now is the war in Ukraine and energy prices.
Corporate interest rates:
The above charts show shorter (left) and longer (right) corporate yields. The entire corporate yield curve has increased during the last few months.
Let's take a look at today's charts:
These are great 1-day charts. They run southeast to northeast. The rally lasted all day and prices ended with a bump higher. You don't get much more bullish.
But the best news is on the 6-month charts. The SPY has broken through resistance and closed above the 200-day EMA. The QQQ also broke through resistance, although it's below the 200-day EMA. The DIA broke strongly above the 200-day EMA, while the IWM is at the top of its consolidation rate.
Hopefully tomorrow the markets will end the week on a high note. Fingers crossed.
I'll be back over the weekend for my weekly market wrap.
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