As ever, this chart shows the extreme-adjusted versions of IHS Markit's PMI (manufacturing) and the Institute For Supply Management's ISM manufacturing index. Extreme-adjustment removes or attenuates extremes in the data (duh!) to give a clearer picture of underlying trends. In addition, if we take the average of two independent (statistically) time series, this also gives us a smoother picture―that's the green line in the chart below, and it's the one to concentrate on.
This is the strongest cycle over the last decade. A rebound from the covid crash, a fiscal sugar hit, and the record low Fed bank rate have all produced a massive stimulus. Which makes it inevitable that the Fed will start tightening policy, moving the Fed Funds rate back to pre-crisis levels―2-ish per cent. It's currently zero.
Their moves are likely to be cautious and measured, but all the same, equities are vulnerable.
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