By Michael Every of Rabobank
Try Not To Be Rash(omon)
The 1950 movie ‘Rashomon’ from director Akira Kurosawa a classic which infamously telling the story of a terrible crime from four different points of view. The “Rashomon effect” is a related term describing the notorious unreliability of eyewitnesses, where an event is given contradictory interpretations or descriptions by the individuals involved. A bit like markets: Everyone thinks they know what’s going on when they actually don’t.
With the full disclaimer that I don’t either, let’s try to thread together a narrative, however. In doing so I personally find an alternative cinematic technique —split screen, as used in The Thomas Crown Affair (1968)— works very well to try to tie simultaneous narratives unfolding in different places which all build to a unified conclusion.
On one screen we have the Fed, which is now lower-er forever-er, with no real change yesterday other than an extension of its swap lines and the FIMA repo facility through to March 2021, alongside a verbal reiteration that they are not even thinking about thinking about raising rates. With 5-year US yields hitting a new low of just below 0.25%, who needs yield curve control? Nobody is thinking about the Fed thinking about thinking about raising rates until at least 2026. And with 10-year yields at 0.57%, there isn’t more than one hike expected in the next decade.
On a second, the US Congress seems incapable of finding an adequate fiscal response to keep the economy afloat, despite the Fed’s pleas. Another few days, perhaps(?) Perhaps not. US tech giants were given a mixed reception, meanwhile. Some came to praise and some came to bury. Few came to seriously call for regulation or breaking them up
On a third, China is flexing its muscles. In Hong Kong, student activists were arrested last night in line with the new national security law, which will almost certainly trigger Western pushback. The Global Times also ran an extraordinary attack on Australia that went beyond the usual threat of massive economic consequences of ‘wrong actions’ to actually state it would “likely face unbearable consequences” if there were a US-China clash in which it chose the US side, as US allies in the Indo-Pacific region would then all be targets for the PLA.