🧵 on FED's policy,
- US Fed increased rates by 0.75% on expected lines
- Will also keep reducing the balance sheet on expected lines BUT
- Equity, Yields & DXY all showed risk off signs?
Reason is the ‘Dot Plot’, let me explain
Please re-tweet & help us educated more investor
- US Fed increased rates by 0.75% on expected lines
- Will also keep reducing the balance sheet on expected lines BUT
- Equity, Yields & DXY all showed risk off signs?
Reason is the ‘Dot Plot’, let me explain
Please re-tweet & help us educated more investor
(Q1) What is a Dot Plot?
(a) It is an expectation (as on today) of the future interest rate movement over the next 3 years as predicted by the 19 members of the FED
(b) Every dot represents each fed members judgment of the future rates (1/n)
(a) It is an expectation (as on today) of the future interest rate movement over the next 3 years as predicted by the 19 members of the FED
(b) Every dot represents each fed members judgment of the future rates (1/n)
(c) If u c the Dot Plot below, it shows that at the end of 2022,
- 1 member is expecting rate to be 3.75 - 4%
- 8 members are expecting the rate to be between 4 - 4.25%
- 9 are expecting it to be between 4.25 - 4.5%
- 1 member is expecting rate close to between 4.5 - 4.75% (2/n)
- 1 member is expecting rate to be 3.75 - 4%
- 8 members are expecting the rate to be between 4 - 4.25%
- 9 are expecting it to be between 4.25 - 4.5%
- 1 member is expecting rate close to between 4.5 - 4.75% (2/n)
(Q2) Whats the importance of the Dot Plot?
(a) Financial markets like more stability & fewer surprises
(b) The dot plot tells the market in advance where interest rates could be heading in future as per the FED members judgement today (3/n)
(a) Financial markets like more stability & fewer surprises
(b) The dot plot tells the market in advance where interest rates could be heading in future as per the FED members judgement today (3/n)
(c) Though the dot plot may change with each Fed meeting, markets seem to prefer having something to work with rather than shooting in the dark (4/n)
(Q3) Why should you care?
(a) Over the last 2 years, the markets went up because of low interest rates & a flood of liquidity
(b) In a low rate regime, fixed income investing dint look interesting & hence liquidity chased Equities & markets were up (5/n)
(a) Over the last 2 years, the markets went up because of low interest rates & a flood of liquidity
(b) In a low rate regime, fixed income investing dint look interesting & hence liquidity chased Equities & markets were up (5/n)
(c) But now the US 2Y yield at 4% is better than the dividend yields on most stocks in the US & hence fixed income is looking better vs stocks in the short term
(d) Also if rates keep going up, it hurts consumption, real estate is starting to show some trouble in US already (6/n)
(d) Also if rates keep going up, it hurts consumption, real estate is starting to show some trouble in US already (6/n)
(e) Stock valuations also get negatively impacted with rising yields
All of this warrants for us to track where rates are heading (7/n)
All of this warrants for us to track where rates are heading (7/n)
(Q4) What’s the current Dot Plot looking like?
(a) After yesterdays increase, the current rate is 3.25%
(b) June meeting prediction was rates at 3.4% by end of 2022. September meeting median rates are 4.4%. Scope of another 1.15% rise in rates in 2022 (4.4 - 3.25) (8/n)
(a) After yesterdays increase, the current rate is 3.25%
(b) June meeting prediction was rates at 3.4% by end of 2022. September meeting median rates are 4.4%. Scope of another 1.15% rise in rates in 2022 (4.4 - 3.25) (8/n)
(c) Rates are now expected to top out at 4.6% vs 3.8% as predicted in the June meeting
(d) Inflation also does not seem to come down to 2% till 2025 & hence no rate cut in 2023 as the market was expecting
P.S. - Look at the Median Column for this & the previous tweet (9/n)
(d) Inflation also does not seem to come down to 2% till 2025 & hence no rate cut in 2023 as the market was expecting
P.S. - Look at the Median Column for this & the previous tweet (9/n)
(e) GDP growth is reduced for 2022, 23, 24 vs the June prediction
(f) All in all the policy was more Hawkish than the market expectations & hence risk assets reacted negatively (10/n)
(f) All in all the policy was more Hawkish than the market expectations & hence risk assets reacted negatively (10/n)
Closing comments,
While India will surely out perform global markets, its difficult to de couple completely. Look at domestic facing stocks likes Financials, Consumption, Auto, Utilities, Industrials etc. because the global picture seems will take some time (11/12)
While India will surely out perform global markets, its difficult to de couple completely. Look at domestic facing stocks likes Financials, Consumption, Auto, Utilities, Industrials etc. because the global picture seems will take some time (11/12)
This is my 57th thread, you can follow me at
@KirtanShahCFP for some interesting content around investing
Have earlier written on,
-Sector Analysis
-Macro
-Debt Markets
-Equity
-Gold
-Personal Finance etc.
You can find them all in the link below (END)
@KirtanShahCFP for some interesting content around investing
Have earlier written on,
-Sector Analysis
-Macro
-Debt Markets
-Equity
-Gold
-Personal Finance etc.
You can find them all in the link below (END)
@FI_InvestIndia hopefully you will like it 🙏
Loading suggestions...