There is the old joke about wearing running shoes in the woods as a protection against bears. All you need to do is outrun the other hikers not the bear. The dollar is appreciating because Fed monetary policy is outrunning other central banks at being more hawkish. It is showing in currency pairs. The only exception with tightening is the BOJ which is holding to its loose policy. All central banks are acting as though they are behind the inflation shock. All these banks are giving forward guidance that rate increases will increase.
- Fed raise 75 bps forward guidance more tightening
- SNB raises 50 bps forward guidance more tightening
- BOE raises 25 bps forward guidance more tightening
- Brazil raises 50 bps
- BOJ holds policy forward guidance more of the same
The global tightening is clearly signaling that risk assets should be repriced around the globe. Tracking country trends using short, intermediate, and long-term models, we find that all are giving a short signal. The only exception is China which is coming out of their aggressive lockdown and showing some improvement in macro numbers. When there was central bank commonality with adding liquidity, equity market moved higher. Now we are seeing a major reversal in both equity and fixed income markets. Call this the Great Risk Repricing Crisis.
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