A Memorable Week! :)

“Every once in a while, the market does something so stupid that it takes your breath away”- Jim Cramer.

The action in the global financial markets this week was more prominent than the simultaneous release of multiple Hollywood blockbuster movies.

The action-filled events of the week, from the monetary policies of the US and Japan to the crucial release of the QRA and the macroeconomic data, led to wild moves in asset markets.

Furthermore, we can’t ignore the deadly escalation in the Middle East, with Iran-based proxies now gradually joining the war.

As curtains draw down to the earnings season, the “healthy” consumer narrative is being decimated, and certain pockets of equity markets are flashing red flags about the “resilient” economy and demand across the West.

Furthermore, the “black hole” of the global financial system is running out of ways to control the monstrous inflation ready to create havoc on the land of the rising sun.

I have written extensively about the BoJ in the last 18 months, and it’s a no-brainer that they are struggling to exit their preposterous QQE and NIRP.

Nonetheless, constrained by the colossal fiscal mess of the Japanese Government, they are taking baby steps, which markets don’t find adequate, to exit the loose monetary policy and negative rates.

Let us take a deep dive into one of the most important weeks for the global financial system this year.

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US!

We will start with the FOMC Meet, which triggered a “relief” rally in the risk assets in hopes of the end of the tightening cycle. As per the FOMC Statement:

“Tighter financial and credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation.”

FOMC’s focus on “tighter financial” conditions was all over the place, including the presser and the statement. JayPo stressed a lot about the rise in bond yields, leading to the tightening of the FCI (Financial Conditions Index).

As per Goldman Sachs, the rise in bond yields is equivalent to 100 bps of rate hikes.

Source: GS