The US Fed has been increasing the funds rate since March 2022 at a blistering pace. Within a year, the rates raised from zero to over 4.5%. Right now, in April 2023, it is around to 4.8%. However, there now seems to be an end in sight for the rate hikes. Since February 2023, the rate hike has slowed from 0.5% to 0.25%. The next Fed hike in May could also be 0.25% as inflation eased from a peak of 9% last June to 6% in February.
Source: bis.gov February 2023 CPI
At the same time, China’s economy is in full swing after the removal its most restrictive Covid-19 policies. China’s March 2023 PMI of 52.6 has been the highest in 5 years (a PMI value of over 50 indicates an expansion of manufacturing activities). The world has now finally moved on from the Covid-19 nightmares.
Source: investing.com. China’s PMI has been expanding since March 2023.
In the US, niche and regional banks have been stressed with liquidity problems due to bank-runs. 3 banks had to be bailed out by the government, one of which, the Silicon Valley Bank (SVB) in California was the 16th largest in the US before it collapsed. That bank catered to the tech start ups and venture capitalists mainly in the San Francisco Bay Area.
Over in Europe, the long distressed Credit Suisse Bank has finally failed and had to be force-merged into UBS, the largest bank in Switzerland.
Collapsing banks is not something that the financial regulators and central banks take lightly. Banks are only as good as the trust their customers have in them. Incidentally, the same applies to currencies / gold / digital coins but that is another topic for another day. These stresses in the financial markets are signals to the US Fed that they have started to break things in the US and internationally.
The slow down in the US Fed fund rate hikes as well as slowing inflation are good news for the investing community as it signals better times for companies and consumers alike. We have not turned the corner yet I believe but that corner will not be far away. China has already started pulling up the world economy. US will soon join in.
The Finance Durian 