THE WEEK THAT WAS & THE WEEK AHEAD – March 13, 2022

Nicholas Glinsman | March 13th, 2022

This will be a free service providing some brief thoughts about the week ahead, along with highlights from the past week’s subscription issues of Ahead of the Herd.

THE WEEK AHEAD

Wednesday is Fed day. This decision will come after an unrelenting drumbeat of elevated inflation readings. Under normal circumstances, the inter-meeting data would support a 50-bps hike. However, circumstances are currently extraordinary, wherein oil prices that shot above $130 earlier in the week, before falling back down to below $110, demonstrated the unpredictability of war, and here I define war as Middle Eastern proxy wars as well as Russia-Ukraine, given Saturday’s Iranian Revolutionary Guards attack on the US base Erbil in Iraq – whither the JCPOA now.

Global financial markets are very skittish, and volatility has remained bid, with the consequential reduction in liquidity exaggerating the swings in all markets. Our call is for a hawkish 25bp rate hike, hawkish in so far as the Fed really needs to regain its inflation-fighting credibility. Furthermore, in that light, we even expect some FOMC members to support the larger hike, and thus dissent from the majority on the committee.

The worst of the inflation news is not over: Supply-chain bottlenecks are worsening again (Empire, Tues.; Philly Fed, Thurs.), while input costs (PPI, Tues.; import price, Wed.) and housing prices (NAHB, Wed.; housing starts, Thurs.) continue to increase. The economy seemed strong enough prior to Russia’s invasion of Ukraine (inventories, Wed.; IP, Thurs.), but with inflation rapidly rising, households might just decide to rethink their budgets and trim discretionary spending (retail sales, Wed.).

As for the markets, I would expect the stock market to continue to be volatile, with a downside bias ahead of Wednesday’s decision. Thereafter, and if we are right, the US Treasury yield curve could further flatten. As for stocks, post the FOMC, I suspect weaker, but would not be surprised with a rally, only in so far as the stock market may need to see the Fed stick to a hawkish anti-inflationary path before concluding that they are serious – in other words, the next meeting or two.

IF YOU LIVE THROUGH THE IMPACT OF SHOCKS FOR LONG ENOUGH, IT BECOMES THE NEW NORMAL – March 11th

THE FED PUT IS NOW A FED CALL – March 10th

I KEEP RETURNING TO THE YOM KIPPURFOR COMPARISONS – March 9th

BEWARE THE IDES OF MARCH – March 8th

DANGER IN DERIVATIVES AMID SURGINGVOLATILITIES – March 7th