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Neither A Hawk Nor A Dove… An Owl

12 December 2019 by lberuti

Despite some substantial moves affecting the risk premia of some companies – we had the opportunity to highlight a few of them in recent comments, and today SPLS (Staples Inc.) was another example as it widened roughly 40bps following the release of their results -, this week was always supposed to be all about macro events. Yesterday, the Fed held its last FOMC of the year and left its key rates unchanged. It confirmed yet again that monetary policy is on hold, and that the bar for rate hikes has been raised significantly over the past year. The tone of the press conference suggested that the Fed’s reaction function was changing, to be far less concerned with upside inflation risk and it removed the prospect of rate hikes should the labour market continue to tighten. Today marked the policy-decision debut of Mrs Lagarde at the helm of the ECB. Her conference suggested that bond investors may still have support from the European institution for now – Mrs Lagarde said she was neither a policy hawk nor a dove, but rather an owl, who will use her wisdom to create the broadest possible consensus to heal a recent rift in the Governing Council -, as she unveiled updated economic forecasts that showed a muted outlook. But neither of these two Central Bank meetings triggered any market reaction. They were greeted with polite indifference, and we had to wait for a tweet of President Trump to spark some action, when he said 'GETTING VERY CLOSE TO A BIG DEAL WITH CHINA. THEY WANT IT, AND SO DO WE' and sent credit indices tighter, very close to the bottom of their recent range (and effectively at their tightest levels of the year if you adjust for effect of the rolls). We will have to wait until tomorrow to see if the next big event brings market to life, once we know the results of the British general election.