S&P 500 Investors Focus on 2022-Q1 as Fed Sets Rate Hike Expectations

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If the S&P 500 (Index: SPX) were doing anything out of the ordinary, we’d be happy to report it. But following the Lévy flight event of the first week of January 2022, we can’t say the index is behaving unexpected in any way.

That assessment is confirmed in the latest update to the alternative futures forecast chart, where we find the trajectory of the S&P 500 falls within the range we would expect for investors focusing on the current quarter of 2022-Q1.

The market-moving headlines we found in the newstream of the week that was point to a substantial effort by the Federal Reserve’s minions to set expectations of multiple rate hikes in 2022, starting in March.

Monday, 10 January 2022

• Signs and portents for the U.S. economy:

• Manchin’s $1.8 trillion spending offer no longer on table -Washington Post
• Omicron becomes latest speed bump for shorthanded U.S. factories
• Lattes go missing, drive-thrus slow as Omicron hits U.S. restaurants

Expectations rise that Fed minions will hike rates four times in 2022, Fed minions planning out balance sheet reduction:

• Some Wall Street banks see four U.S. interest rate hikes this year

• Fed’s Powell vows to prevent inflation from becoming ‘entrenched’

NY Fed’s Logan says redemption caps can ensure smooth balance sheet reduction

Fed’s Clarida to resign two weeks early amid trading controversy

ECB minions standing by to leap into action if needed:

• ECB may need to act if energy price rises more persistent: Schnabel

Stocks fall further as U.S. yield climb unnerves investors

• Big U.S. banks expected to post uptick in core Q4 revenues on economic rebound
• Nasdaq ekes out gain in late session comeback

Tuesday, 11 January 2022

• Signs and portents for the U.S. economy:

• Oil nears $84 as Omicron impact expected to be short lived
• JPMorgan’s Dimon says consumer loan growth may take 6-9 months to return to normal
• U.S. new vehicle prices hit record high in December – Kelley Blue Book

Fed minions seeks to set expectations for faster stimulus bond buy taper and slower pace for rate hikes:

• U.S. economy can withstand Fed tightening, Omicron surge, Powell says

• Fed’s Powell sees tweaks to key leverage ratio, climate analysis on agenda going forward
• Fed balance sheet drawdown coming, says Powell at confirmation hearing
• Fed’s Powell: We will reduce balance sheet sooner and faster than last time

Fed should run down balance sheet ‘earlier rather than later’ – George

Fed’s Bostic says three hikes, fast balance sheet runoff needed for inflation fight

Bigger trouble developing in Mexico, rest of the world:

• BofA cuts Mexico 2022 GDP outlook to 1.5%
• Gloomy outlook for global recovery, World Economic Forum survey finds

ECB minions say they can be trusted:

• Trust ECB to stabilise inflation, Lagarde tells citizens

Wall Street closes higher after Powell testimony eases investors’ concerns

• U.S. stocks bounce, investors digest news of 2022 rate hikes

Wednesday, 12 January 2022

• Signs and portents for the U.S. economy:

• Oil rises 2% on U.S. crude drawdown, weaker dollar
• U.S. consumer inflation soars to new 40-year high
• U.S. mortgage interest rates surge by most in almost 2 years

Fed minions say four rate hikes needed in 2022, want to shrink Fed’s balance sheet:

• Fed’s Bullard sees four U.S. rate hikes this year
• Fed’s Mester says she supports reducing balance sheet as fast as feasible

ECB minions like their rules:

• ECB won’t demand the impossible from banks but rules must stand, Enria says

Wall Street closes higher as inflation data supports Fed bets

Thursday, 13 January 2022

• Signs and portents for the U.S. economy:

• U.S. producer prices rise moderately in December
• Oil edges lower on profit-taking, rate hike worries

Fed minions working hard to shape rate hike expectations. Starting in March 2022:

• Fed officials nod to March rate hike as inflation drumbeat grows louder
• Fed’s Harker open to more than three rate hikes in 2022 if inflation worsens – FT

• Fed’s Harker says balance sheet runoff should be steeper than last time

Fed’s Evans: we need to be adjusting monetary policy

Fed’s Barkin says timing and pace of rate moves will depend on inflation

• Fed’s Barkin says labor shortage is part of a long lasting phenomenon

Fed’s Brainard vows to battle inflation, deflects Republican climate criticism

Exclusive-Fed’s Daly: March liftoff is ‘quite reasonable’

Wells Fargo expects four U.S. rate hikes this year, cuts growth forecast

ECB minions starting to think Eurozone inflation may not be transitory:

• Euro zone inflation not as transitory: ECB’s de Guindos

Wall St closes down, Fed speakers put rate hikes in focus

• Fed’s hawkish comms blitz takes aim at skeptical market: McGeever

Friday, 14 January 2022

• Signs and portents for the U.S. economy:

• U.S. manufacturing output unexpectedly falls in December on autos
• U.S. grocery shortages deepen as pandemic dries supplies
• Early holiday shopping hammers U.S. retail sales; Omicron drag anticipated in January
• Oil’s bull run rolls on despite possible China reserves release

Fed minions see problems in U.S. economy, deny their policies caused inflation:

• Fed’s Harker says U.S. economy is improving but still freighted with risks
• NY Fed’s Williams says Omicron wave may slow growth temporarily

• NY Fed’s Williams says completely sensible to raise interest rates

Fed’s Daly: COVID-19 caused inflation, but Fed has to fix it

Bailouts developing in China:

• Analysis-With Evergrande debt relief deal, China signals stability trumps austerity

Central banks start turning off the cash taps

• Exclusive-BOJ debates messaging on eventual rate hike as inflation perks up

• BOJ considering conducting analysis on inflation dynamics – sources

S.Korea’s central bank delivers back-to-back rate hikes amid inflation worries

ECB to do everything it takes to get inflation to 2%: Lagarde

Dow closes lower after disappointing bank results

Through 14 January 2022, the CME Group’s FedWatch Tool projects at least four quarter point rate hikes in 2022. Generally each hike would take place in the month ending each quarter, but possibly earlier than that in the third quarter.

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