Morning Minutes

Stocks Climb as Central Banks Start to Normalize Monetary Policy




Building on yesterday’s rebound which saw a burst of short covering and bargain hunting after the big Fed decision unshackled investors, US index futures are all up about 0.6% this morning, adding to yesterday’s US index gains of 1-2%. Overseas markets are also on the rise today with the Dax jumping 1.6% and the FTSE gaining 1.0%.

Six weeks after starting to scale back emergency asset purchases, the US central bank accelerated doubled the pace of cutbacks to put it on track to end asset purchases by March instead of June. The dot plot of Fed Funds rate forecasts indicated that the majority of members are now expecting 2-3 rate hikes next year implying, at a rate of one rate hike per quarter, that US interest rate hikes could potentially start in June.

It remains to be seen if equities can continue to follow through on current enthusiasm through the whole day, but central banks have been following through on the Fed’s hawkish shift. This morning, the Bank of England announced a surprise interest rate increase to 0.25% from 0.10%, and the European Central Bank announced a cut to its asset purchases with their program currently scheduled to end in March as well. The Swiss National Bank did not make any changes and it remains to be seen what the Bank of Japan may do when it meets tonight or the People’s Bank of China when it meets next Monday.

In general, investors appear to be taking this news as a sign that despite the recent COVID Omicron wave, things are slowing getting back to normal. With economies getting back up on their feet, central banks appear to be starting to take rising inflation more seriously and shifting their focus there. In another sign of a normalizing economy, Delta Air Lines announced today that it expects to report a pretax profit for this quarter as traffic continues to rebound. Before getting too enthusiastic, however, investors should note that Turkey’s central bank cut interest rates today, a reminder that many areas continue to struggle.

In economic news, flash PMI reports, the first early peak at the December economy are out today. Results from Germany were disappointing where flash service PMI (48.4 vs street 51.0 and previous 52.7) rolled back under 50 into contraction territory. UK services also slowed (53.2 vs street 57.0 and previous 58.5). US flash PMI reports are due at 9:45 am EST with the street expecting steady readings of 58.5 for manufacturing and 58.7 for services.  

Today’s other US numbers have been mixed so far. US housing starts (1.68M vs street 1.56M), and continuing employment claims (1.845M vs street 1.936M) beat expectations, while jobless claims (206K vs street 195K) and the Philadelphia Fed manufacturing survey (15.4 vs street 30.0) came in worse than expected. US industrial production is due at 9:15 am EDT today (street 0.7% vs previous 1.6%).

Subscribe to the Morning Minutes:

Today's earnings reports and market activity, delivered right to your inbox.

Colin Cieszynski, Chief Market Strategist

Colin Cieszynski, CFA, CMT
Chief Market Strategist
+1 (647) 282-4428

Read More

Legal and Regulatory Disclosures

Terms and Conditions:
This information is for Investment Advisors only. The website is for informational purposes only and is not intended to provide a complete description of SIA Wealth Management’s products or services. Past performance is not indicative of future results. It should not be construed as investment advice or relied upon in making an investment decision. Products and services of SIA Wealth Management are only offered in jurisdictions where they may be lawfully offered for sale. The information contained in this Website does not constitute an offer or solicitation by anyone to buy or sell any investment fund or other product, service or information to anyone in any jurisdiction in which an offer or solicitation is not authorized or cannot be legally made or to any person to whom it is unlawful to make an offer of solicitation. All products and services are subject to the terms of each and every applicable agreement. It is important to note that not all products, services and information are available in all jurisdictions outside Canada.

SIA Wealth Management Inc. (SIAWM) specifically represents that it does not give investment advice or advocate the purchase or sale of any security or investment whatsoever. This information has been prepared without regard to any particular investor’s investment objectives, financial situation, and needs. None of the information contained in this document constitutes an offer to sell or the solicitation of an offer to buy any security or other investment or an offer to provide investment services of any kind. As such, Advisors and their clients should not act on any recommendation (express or implied) or information in this report without obtaining specific advice in relation to their accounts and should not rely on information herein as the primary basis for their investment decisions. Information contained herein is based on data obtained from recognized statistical services, issuer reports or communications, or other sources, believed to be reliable. SIA Wealth Management Inc. nor its third party content providers make any representations or warranties or take any responsibility as to the accuracy or completeness of any recommendation or information contained herein and shall not be liable for any errors, inaccuracies or delays in content, or for any actions taken in reliance thereon. Any statements nonfactual in nature constitute only current opinions, which are subject to change without notice.