Strong economic data may force the Federal Reserve to return to a more hawkish pace

By JustMarkets

In the US, higher-than-expected Gross Domestic Product (GDP) growth of 3.2% in the third quarter – compared to forecasts of 2.9% growth – has returned fears of an interest rate hike to the market. This led to a strengthening of the dollar index and a selloff in the stock market. As the stock market closed, the Dow Jones Index (US30) decreased by 1.05%, and the S&P 500 Index (US500) lost 1.45%. The Technology Index NASDAQ (US100) closed the day at minus 2.18%.

Strong economic data may force the Federal Reserve back to a more hawkish mood. The Fed is especially concerned that a strong labor market gives more oxygen to inflation, which has declined slightly in recent months but is still at its highest level in decades. Therefore, the Fed may have to continue raising interest rates and keep them high for a long time.

Shares of Micron Technology Inc (MU) fell more than 3% after posting quarterly results that didn’t meet expectations. The gloomy macroeconomic backdrop continues to weigh on demand. Deutsche Bank estimates there is a risk of further declines as Micron estimates point to a recovery in demand by mid-2023.

Equity markets in Europe mostly fell yesterday. Germany’s DAX (DE30) decreased by 1.30%, France’s CAC 40 (FR40) lost 0.95%, Spain’s IBEX 35 (ES35) fell by 0.39%, and the British FTSE 100 (UK100) closed Thursday down by 0.37%.

ECB spokesman Luis De Guindos said yesterday that inflation in the Eurozone would be around current levels for the next 2-3 months. This coincides with other comments from ECB policymakers. In addition, de Guindos supported the hawkish stance, saying that 50 bps is now the new standard for suppressing rising inflationary pressures in the Eurozone. The ECB is expected to raise interest rates twice more with a 0.5% step.

China reiterated its focus on boosting economic growth in 2023, which helped revise the impact of crude oil demand upward. China, the world’s largest consumer and importer of crude oil, naturally influences the overall price depending on the state of the economy. Increasing demand for oil with limited supply will drive up oil prices.

Asian markets mostly rose yesterday. Japan’s Nikkei 225 (JP225) gained 0.46%, China’s FTSE China A50 (CHA50) added 0.69%, Hong Kong’s Hang Seng (HK50) increased by 2.71%, India’s NIFTY 50 (IND50) was down by 0.39%, and Australia’s S&P/ASX 200 (AU200) was up 0.53% on the day.

In Japan, inflation data showed that consumer prices (excluding food energy prices) rose from 3.6% to 3.7% year-over-year, the highest since 1981. The Bank of Japan expects inflation to peak around 4% early next year. After the Bank of Japan’s shocking decision this week to let bond yields rise, higher inflation will support speculation that the central bank is nearing a policy reversal. A policy change could come in the spring of 2023 after a new governor takes the helm of the Central Bank.

S&P 500 (F) (US500) 3,822.39 −56.05 (−1.45%)

Dow Jones (US30) 33,027.49 −348.99 (−1.05%)

DAX (DE40) 13,914.07 −183.75 (−1.30%)

FTSE 100 (UK100) 7,469.28 −28.04 (−0.37%)

USD Index 104.43 +0.27 (+0.26%)

• – Japan National Core CPI (m/m) at 01:30 (GMT+2);
• – Japan Monetary Policy Meeting Minutes at 01:50 (GMT+2);
• – Singapore Consumer Price Index (m/m) at 07:00 (GMT+2);
• – US Core Durable Goods Orders (m/m) at 15:30 (GMT+2);
• – US PCE Price index (m/m) at 15:30 (GMT+2);
• – Canada GDP (m/m) at 15:30 (GMT+2);
• – US Michigan Consumer Sentiment (m/m) at 17:00 (GMT+2);
• – US New Home Sales (m/m) at 17:00 (GMT+2).

By JustMarkets

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.