Cycle to Materialise?
Macro Perspectives
US stocks closed at record highs on Thursday, building on the rally from the previous session, after the Federal Reserve maintained current borrowing costs and reaffirmed its intention of three interest rate cuts this year.
The S&P 500 gained 0.3%, the Dow Jones rose 269 points, and the Nasdaq added 0.2%.
Other semiconductor stocks outperformed, including Nvidia and Broadcom gaining 1.2% and 5.7%, respectively.
Reddit began trading on the NYSE, surging 47.2% after its IPO was priced at $34 per share.
The social media platform raised approximately $750 million from the offering.
The Bank of Japan's move on Tuesday was the beginning of the end of its role as the global liquidity backstop/support to Western world economies. Global central banks may now have less leeway to hold rates too high, for too long.
That said, although the Fed didn't budge on policy, Jerome Powell did say (twice) that an "unexpected weakening in employment would warrant a policy response." Additionally he did discuss the strategy to end quantitative tightening, and the related risks of liquidity problems - he voluntarily brought up the 2019 cash crunch, where the Fed's first ever attempt at quantitative tightening induced a liquidity shock.
So, if there was any doubt going into the Fed meeting about whether or not the Fed was entertaining the idea of another rate hike, there should be no doubt now.
And if there were doubts on whether or not this easing cycle would materialise, there shouldn't be now. Why? Because the easing cycle kicked off yesterday morning in Switzerland. In a surprise move (for markets) the Swiss National Bank cut rates by a quarter point.
As we've discussed here in my daily notes, the major central banks of the world have coordinated closely throughout the crises of the past 15 years. They all went to ultra-easy emergency level policies in response to the pandemic, and now all (except Japan) have interest rates set ABOVE the rate of inflation (restrictive territory).
They will all be cutting rates, in coordination, in the coming months, mostly to ensure that global liquidity doesn't become too tight, and (related) that their respective government bond yields (borrowing rates) don't run away (higher).
