Rates markets are now pricing in around 100 basis points of Fed easing this year, something Fed Chair Jerome Powell said on Wednesday is definitely not the central bank’s base case scenario.
The uncertainty is rooted in what impact the banking crisis will have on U.S. credit conditions in the coming months, and by extension on economic activity and inflation. As Powell stated baldly on Wednesday: “We simply don’t know.”
Treasury Secretary Janet Yellen did know that she had a second chance on Thursday to soothe concerns among investors and the wider public about whether authorities will move towards guaranteeing all bank deposits.
She told a House committee she is prepared to take further actions to ensure bank deposits are safe, a day after telling a Senate committee blanket insurance was not on the agenda. It might not be on a par with Powell’s assurances – bank stocks still fell – but perhaps sentiment will improve on Friday.
So Asia opens on Friday to firmer world stocks, lower yields, mix U.S. yield curves, higher global rates after the UK and Swiss hikes – but a growing sense that the world policy peak is in sight – a rising dollar, and a notably stronger yen.
