Financial markets relief from central bank inflation strategy as Barratt clients shrug off concerns over rate hike


Relief rippled through financial markets as the Federal Reserve appears determined to maintain the course it had charted in an attempt to rein in runaway inflation. The FTSE 100 opened 1.6% higher after a d strong gains on Wall Street with the S&P 500 and tech-heavy NASDAQ up around 3%.

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Q1 2022 Hedge Fund Letters, Talks & More

Maverick Capital slips 22.9% in the first quarter, short bets generate positive returns [Exclusive]

investor 1652197064Maverick Capital’s flagship hedge fund lost -22.9% in the first quarter of 2022 according to a copy of the company’s quarterly update, which ValueWalk was able to review. The company’s flagship fund, Maverick Fundamental Hedge, represents $3.7 billion of the group’s $8.1 billion in assets under management. Even after the losses of the first Read more

Financial market relief

Financial markets have become addicted to the drug of cheap money and policymakers are clearly keen not to shock the economy by weaning dependents too quickly, which reassures investors. The 0.5% rise in interest rates may have been the largest in the United States since 2000, but it was a measure already priced in by the markets. Rolling back the mass stimulus program by offloading obligations from the Fed’s balance sheet will start on a more gradual slope than some feared at $47 billion a month, before rising.

Jerome Powell’s remarks eased tensions, indicating that a steeper 0.75% rise was not expected at this time for hikes this summer, with a more gradual rise in rates expected. But that’s not completely off the game plan, as the Fed wants to remain nimble in the face of rapidly changing circumstances.

Now, the focus turns to the Bank of England and its midday decision and with the backdrop of a decidedly cautious rather than ultra-aggressive stance towards inflation control, one expects policymakers are also voting for a 0.25% rate hike. Businesses and consumers are already braced for further rate hikes that could drive up the cost of living and doing business. The toxic combination of high raw material costs, supply chain issues and the struggle for labor is already weighing on demand, and the concern is that if rates rise too quickly, it could tip the economy into a slowdown. This is why a soft-soft approach is expected from the Bank of England, particularly regarding the continued unwinding of its mass stimulus program. It has already been said that he will not reinvest the profits from these bond purchases, but it will not be easy to get the right time to start selling his $847 billion in holdings without disrupting bond markets and result in higher government borrowing costs.

Barratt clients ignore rising inflation

For now, borrowers appear to be brushing aside concerns over rising rates, credit card spending climbing and the housing market showing very few signs of faltering. Barratt Developments PLC (LON:BDEV) followed a string of homebuilders in releasing an upbeat picture of demand. For now, homebuyers are ignoring concerns about soaring inflation and rising rates and are snapping up new homes like hotcakes. Forward sales, including joint ventures, hit £4.38bn at the start of the month, up from £3.7bn a year earlier.

Sales are booming, helped by market undersupply and rising rents, making monthly mortgage payments cheaper. The housing booking rate has increased by 12% over the previous year, as the space and hunger race to access the first rung of the housing ladder continues. Barratt is not immune to the pain of cost inflation plaguing the sector. He expects an average of 6% for the year and could be particularly onerous in the coming months as suppliers are forced to fluctuate prices in part due to volatile energy costs. But he was able to raise the price of homes in response and for now his clients are willing to pay the price. With consumer costs rising across the board, homebuyers won’t be able to swallow rising prices indefinitely.”

Article by Susannah Streeter, Senior Investment and Market Analyst, Hargreaves Lansdown

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