Good Monday AM,
Assets getting beaten up today as markets pull back on fear of the Fed. There is not much more to it. Australia did raise rates .50% but that was widely expected. This week’s Jackson Hole symposium offers Fed Chair Jay Powell the chance to reinforce the central bank’s hawkish message. Powell speaks at the conference at 10am on Friday and he is expected to underline the Fed’s resolve in combating inflation. So far the market has been anticipating a more hawkish bias, with US 10-year yields touching the 3% level again, from as low as almost 2.5% at the beginning of August.
Higher yields are giving the dollar a renewed lease of life (the dollar again worth more than the Euro, great time to travel…).
I’ve been hearing quite a few comments about how prices are deflating. While that could be true in a small window of time, I would like to share a graph of how price appreciation happens over a longer scale. It is never a straight line up but the time periods where markets pause are small and the pause is limited. I would not expect this time to be much different.
Buy the dip!
And to drive the above point home from a different direction, this slide below shows how impactful the run up in rates has been to affordability (and therefore velocity).
Once rates come back, affordability will improve and velocity will pick up.
