Last week Federal Reserve did the last hike before the summer break started and the tone this time also continued to be neutral towards what is ahead. And this is logical as the next meeting will be in September after 51 days from now, with the Jackson Hole meeting at the end of August.
From the perspective of the rate swap market, this is the last hike for this year. But given the Bond market has almost $250 Bn in a short position and money market funds have reached an asset size of $5.6Trillion. There is a high level of uncertainty ahead.
This uncertainty level gets a push when the future of inflation is to be mapped. Given that Russia has suspended the Grain deal, the wheat prices in financial markets are up by 18% within two weeks. At the other end of the spectrum, Brent oil prices are nearing $85/bbl after a gap of three months and a price reversal trend since June 2022. This has resulted in Russian oil breaching sanction prices. These two factors alone would make inflation estimation very volatile from August or September.
Given such an uncertain time ahead, a rise of 11% in the global equity markets since April 2023 does look like the worst is behind us. But given the recent speeches of the central banks, the last phase of the fight is always the toughest. And this by historical trends has a time frame of 9-12 months.