Back in my March 21st note, we discussed the Swiss National Bank's surprise quarter point rate cut.
And I said, "if there were doubt on whether or not this easing cycle would materialize, there shouldn't be now."
The major central banks of the world had coordinated closely throughout the crises of the past 15 years. They all went to ultra-easy emergency level policies in response to the pandemic, and then all (exception Japan) took interest rates ABOVE the rate of inflation (restrictive territory).
And as we discussed back in that March note, we should expect them to all be cutting rates, in coordination, in the coming months, mostly to ensure that global liquidity doesn't become too tight, and (related) that their respective government bond yields (borrowing rates) don't run away (higher).
We've since had the beginning of the easing cycle in Sweden. And this morning, in Canada (with a quarter point cut from the Bank of Canada).
And tomorrow morning, the European Central Bank should be cutting rates, after taking rates up 450 basis points in fourteen months.
That leaves the Bank of England, which has perhaps the easiest case to make for cutting rates at its June 20 meeting.
And, of course, the Fed meets next Wednesday.
Is the market getting the message on the easing cycle?
Stocks are back on record highs.
The U.S. 10-year yield is down 36 basis points in five days!
As you can see in the chart, today it traded below the levels of the May 15th CPI report (April inflation).
And at 4.28% on the 10-year today, that's the lowest level since April 1st.
And April 1st is an interesting date. It's the Monday after the Good Friday PCE report (where the market re-opened to digest the report).
Both of those prior inflation reports took yields higher. And as you can also see in the chart, the recent PCE report has resulted in lower yields.
