Dovish Pricing but Where is the Pain?
With Australia, Japan, and countries across Europe facing stronger inflation, yields have moved higher across the globe. We believe upcoming central bank action could send hawkish ripples throughout the market. While a 25 bp hike from the US Fed has been priced into the market for weeks, cautionary guidance could drive market moves. Moreover, we expect a hawkish ECB and BOE, which will likely hike 50 bps. Meanwhile, ECI, a measure of total compensation, is strong alongside strong prints in both the JOLTS and unemployment claims. China's reopening and activity surge, along with higher energy costs, will continue to be potential inflation drivers. Powell has said that there will be some pain in the economy as policy becomes restrictive, but that pain has not (yet) been apparent - layoffs been easily absorbed by a resilient labor market in which headlines continue to focus on higher-profile cuts but gains elsewhere and strong wages have been a nearly complete offset.