Here's what will happen in the next few months

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Here's what will happen in the next few months

If an investor tells you if they know what happens next in macro markets, they are likely to be fibbing.

There is a confusion in policy and investment circles over the course of inflation, output, jobs, financial prices and central bank policy that the next 3 - 6 months are likely impossible to predict with any conviction.

Ironically, there appears to be much less uncertainty over the long-term horizon where risk premia has traditionally been much higher because more things can go bump in the night over elongated time spans.

It may be easier for forecasters to look beyond unprecedented pandemic-related supply bottlenecks and labour market distortions than navigate a Northern winter of still wildly skewed economic statistics and policy nervousness.

After eye-watering changes in short-term interest rates over the past couple of weeks, due to Bum steers from the world's top central banks, market conviction about the next few months is understandably low.

There is another ING's Rob Carnell called a "cacophony" of central bank speeches that do little clarify the big picture for messy and directionless markets and do much more to encourage thoughts of divergence and volatility.

Federal Reserve Chair Jerome Powell spoke with a dovish tone, emphasising the Fed to be looking closely at labour market disparities rather than just headline numbers in assessing maximum employment.

His colleagues sing from very different hymn sheets. On Monday alone, Fed vice president Richard Clarida said conditions for lifting interest rates may be in place by the end of 2022; St Louis Fed chief James Bullard agreed with markets that there will be two rate hikes by then, but Chicago Fed boss Charles Evans doesn't expect one until 2023.

The Fed is always in the hot seats at the moment, but investors can judge the mood of who's in the hot seats at the moment. They still don't know if Powell will be re-appointed as Chair when his term expires in February. The decision by the top bank supervisor Randal Quarles to go back next month leaves at least two vacant seats on the board going into year-end.

Although the Fed's overseas peers are faced with similar inflation and jobs conundrums, they seem to be on similar paths.

The chief economist, Philip Lane, has pushed back against market pricing for a small ЕЦБ rate rise next year, and European Central Bank officials have pushed back against market pricing for a small ECB rate rise next year.

The bank supervisor Andrea Enria said that low interest rates hurt bank margins more than they are boosting lending volumes, as bank supervisor Isabel Schnabel said the bank cannot ignore surging house prices.

Catholic faith in Bank of England chief Andrew Bailey's speeches were held under the waterline last week after he spent a month nidging markets into thinking a UK rate rise was possible and then voted against one at last Thursday's meeting. He is still pointing to higher rates, and insists that tighter credit doesn't solve supply-distorted inflation spikes.

The terminal rates for bond and currency markets are some anchor for bond and currency markets because of returning to fundamental models of where interest rates should end up at the end of the cycle.

It's a good idea that this centrally-mandated global recession and bounce-back of the past 18 months is anything like any other cycle we've seen.

There's no consensus now on how we get from here to there.

A JPMorgan survey of its clients this week asked whether markets or central banks were correct in their interest rate expectations over the next year. The answer was split between 50 and 50, just like many other questions that it posed on equity or bond positioning.

The central banks are very satisfied, according to the conundrum. It could be that they risk shut down the recovery before it matures; jump the shot on other countries and you risk a rising currency expanding the hit, or just do nothing and risk inflation entrenching.

Mark Nash, a fixedincome alternative to Jupiter, thinks that the Fed is unenviable and it has to choose between economic price stability and equity price stability. The central banks warned once again this week that easy money threatened blowing bubbles in everything from stocks to cryptocurrencies and meme stocks.

Many people are just staying long equity, buying inflation protected bonds and crossing fingers.

The seemingly endless sinking of inflation- protected government bond yields to records ever deeper below zero reflects just that. Inflation-linked bond yields are now below 1.1% in the United States, below 2.0% in Germany and below 3.2% in Britain.

It could take a lot longer to assess than markets have patience for.

For now, investors had better preparation for sluggish labour supply, persistent inflation and rising financial volatility.