To The Moon

Recently, more and more central banks have joined the ranks of "pausing rate hikes".

1️⃣ On March 8th, the Bank of Canada announced the first shot of suspending rate hikes, which was in line with its own interest rate guidance in January and market expectations.

2️⃣ On April 4th, the Reserve Bank of Australia followed suit and announced that it would not raise interest rates, which was also expected, but emphasized that it is prepared to resume raising interest rates if necessary.

3️⃣ More surprisingly, Vietnam even cut interest rates by 1% on March 15th! This is probably to save the sluggish economy and real estate market, but Vietnam's inflation is not high.

4️⃣ The Reserve Bank of India unexpectedly announced the suspension of interest rate hikes yesterday! This is mainly due to considerations of the real economy, so it decided to wait and see first. However, India's interest rates are already higher than the inflation rate, at least maintaining a level that can suppress inflation.

When will it be the turn of the major economies in Europe and the United States?

Today, I stumbled upon some long-forgotten data related to the yield curve inversion, which investors may have overlooked due to the Silicon Valley Bank's collapse that caused the yield curve to become steeper. Some even consider it normal or not worth paying attention to since it has been in this state for a while, just like negative interest rates.

Currently, the yield curve for the 10-year and 2-year treasury bonds has indeed steepened, but the "favorite" yield curve of Powell, the difference between the yield of 3-month and 18-month forward rates, has fallen to a new low!

A year ago, Powell said that this indicator is the most reliable indicator for the bond market to suggest an impending recession. If even this indicator is inverted, it means that the US economy is weak, and the Fed will cut interest rates.

However, since November last year, this indicator has been negative and has continued to hit new lows. The Fed has been focusing on combating inflation and ignoring this indicator, which led to the bank's bankruptcy crisis.

It is not surprising that the market has an interest rate cut expectation. The main reason is that the Fed has often contradicted its past actions in the past two years, making it challenging for the market to price: temporary inflation, banks passing the stress tests, and the yield curve inversion indicating a rate cut.

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