The IMF has published a new economic forecast. Investors awaiting US inflation report and Fed meeting minutes

By JustMarkets

The US stock market traded without a single trend yesterday. At the close of trading, Dow Jones Index (US30) increased by 0.29%, S&P 500 (US500) closed at opening levels. The Technology Index NASDAQ (US100) was down by 0.43%. At the moment, the situation in the US stock market is mixed. Investors are waiting for the US inflation report and the latest Federal Reserve meeting minutes. These two reports will explain the US Federal Reserve’s future policy. Rising core inflation and hawkish FOMC minutes could add confidence to the dollar as it increases the likelihood of another 0.25% interest rate hike at the May 3 meeting. Conversely, lower inflationary pressures, along with non-hawkish FOMC minutes, could trigger a sell-off in the dollar.

Fed officials are signaling disagreement over whether to raise rates again. New York Fed President John Williams said on Tuesday that Fed officials still have a lot of work to do to bring rates down and suggested they would stay the course. Meanwhile, Chicago Fed President Austan Goolsbee, who is voting on monetary policy decisions this year, instead called for “prudence and patience” in assessing the economic impact of tightening credit conditions. Williams, speaking earlier in the interview, said the average forecast by Fed officials in March suggests another interest rate hike this year, followed by a pause.

First-quarter earnings reports from major banks, including JPMorgan (JPM ), Citigroup (C), and Wells Fargo (WFC), will also be released this week. Analysts expect S&P 500 companies to report a 5.2% year-on-year decline in first-quarter earnings as they lower expectations.

The International Monetary Fund on Tuesday cut its global growth forecast for 2023 as higher interest rates dampened activity and warned that a severe worsening of turmoil in the financial system could reduce output almost to recessionary levels. The IMF currently forecasts global real GDP growth of 2.8% in 2023 and 3.0% in 2024, a sharp slowdown from 3.4% in 2022 due to monetary tightening. The IMF forecast for the US has slightly improved: Growth in 2023 is forecast at 1.6% compared with a forecast of 1.4% in January. But the Fund has lowered forecasts for some major economies, including Germany, which is forecast to contract by 0.1% in 2023, and Japan, where growth is forecast at 1.3% instead of the 1.8% forecast in January.

The Fund also envisaged a severe deterioration scenario with a much broader exposure to bank balance sheet risks, leading to a sharp credit contraction in the US and other advanced economies, a significant reduction in household spending, and an exodus of investment funds into dollar-denominated safe haven assets. Emerging market countries would be hit hard by lower export demand, currency depreciation, and a sharp rise in inflation. That said, central banks should not stop fighting inflation because of financial stability risks that look “largely subdued.”

Equity markets in Europe mostly rallied on Tuesday. Germany’s DAX (DE30) ended the day up 0.37%, France’s CAC 40 (FR40) added 0.89% over yesterday, Spain’s IBEX 35 Index (ES35) lost 0.80%, Britain’s FTSE 100 (UK100) gained 0.57% over yesterday.

The IMF forecasts released yesterday do not take into account the impact of the recent OPEC+ oil production cuts, which caused a jump in oil prices. The IMF assumes an average world oil price of $73 a barrel in 2023, well below the price of current oil prices.

Asian markets mostly rose yesterday. Japan’s Nikkei 225 (JP225) gained 1.05%, China’s FTSE China A50 (CHA50) decreased by 0.59%, Hong Kong’s Hang Seng (HK50) added 0.76%, India’s NIFTY 50 (IND50) gained 0.56%, Australia’s S&P/ASX 200 (AU200) closed positive by 1.26%.

The head of Japan’s leading banking group MUFG believes that the Bank of Japan may end its control of the yield curve by September. On Monday, Ueda said at his first press conference as governor of the Bank of Japan that it would be “appropriate” to maintain control of the yield curve. Ueda added that the bank could explore a “more sustainable structure that takes into account spillover effects,” hinting at changes in the future. According to analysts, if the Bank of Japan is confident that inflation will reach a stable level, it could possibly abolish its negative interest rate policy in the fiscal year 2024.

S&P 500 (F) (US500)4,108.94 −0.17 (−0.0041%)

Dow Jones (US30) 33,684.79 +98.27 (+0.29%)

DAX (DE40) 15,655.17 +57.28 (+0.37%)

FTSE 100 (UK100) 7,785.72 +44.16 (+0.57%)

USD Index 102.15 -0.43 (-0.41%)

• – US FOMC Harker Speaks at 01:00 (GMT+3);
• – US FOMC Kashkari Speaks at 02:30 (GMT+3);
• – Japan Producer Price Index (m/m) at 02:50 (GMT+3);
• – Indian Consumer Price Index (m/m) at 15:00 (GMT+3);
• – US Consumer Price Index (m/m) at 15:30 (GMT+3);
• – UK BoE Gov Bailey Speaks at 16:00 (GMT+3);
• – Canada BoC Interest Rate Decision at 17:00 (GMT+3);
• – Canada BoC Monetary Policy Report at 17:00 (GMT+3);
• – US Crude Oil Reserves (w/w) at 17:30 (GMT+3);
• – Canada BoC Press Conference at 18:00 (GMT+3);
• – US FOMC Meeting Minutes at 21:00 (GMT+3);
• – UK BoE Gov Bailey Speaks at 22:15 (GMT+3).

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.