The unexpected rise in US real estate market activity has heightened expectations for a more hawkish stance by the Fed

June 21, 2023

The US single-family home construction jumped in May to its highest level in more than a year, and the number of permits issued for future construction also rose, indicating that the housing market is not yet feeling the pressure of high-interest rates and increasing the likelihood of another rate hike from the Fed. This sentiment is putting pressure on investors, so the stock market has seen profit-taking.

At the close of the stock market yesterday, the Dow Jones Index (US30) decreased by 0.72%, and the S&P 500 Index (US500) lost 0.47%. The NASDAQ Technology Index (US100) closed negative by 0.16% on Tuesday.

Today, traders will be watching Fed Chairman Jerome Powell’s speech on monetary policy before the US House Finance Committee. Any hawkish statements could intensify the sell-off in stocks.

Equity markets in Europe were mostly down yesterday. German DAX (DE30) decreased by 0.55%, French CAC 40 (FR40) was down by 0.27%, Spanish IBEX 35 (ES35) added 0.13%, British FTSE 100 (UK100) closed negative yesterday by 0.25%.

The Organization for Economic Cooperation and Development forecasts 6.9% annual inflation in Great Britain this year, the highest among all advanced economies. The data indicated continued labor market tightness, strong underlying inflationary pressures, and a mixed but surprisingly steady GDP growth momentum. Economists now expect the Bank of England to extend its tightening cycle and raise interest rates to a higher level than previously expected.

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The European Central Bank has completed most of its interest rate hikes, and possible further increases will be less important for fighting inflation than the duration of monetary tightening, Bank of France Governor François Villeroy de Galhau said yesterday. The policymaker’s comments diverged from those of other ECB officials, who warned that a hike may still be needed in the fall.

Asian markets traded yesterday without a single dynamic. Japan’s Nikkei 225 (JP225) increased by 0.06% for the day, China’s FTSE China A50 (CHA50) was down by 0.60%, Hong Kong’s Hang Seng (HK50) lost 1.54% by Tuesday’s end, and Australia’s S&P/ASX 200 (AU200) jumped by 0.86% by the day.

According to current forecasts, the Bank of Japan expects the recent rise in core consumer inflation, driven by rising costs, to decline in the coming months but to recover again due to strong demand and wage growth. Minutes from the Bank of Japan’s April meeting showed that nine of the ten board members were not going to change their ultra-soft policy in the near term.

HSBC on Tuesday lowered its forecast for China’s economic growth this year, citing resistance in the real estate sector and declining business and consumer confidence. The global bank now forecasts that China’s gross domestic product (GDP) will grow by 5.3% in 2023, down from the 6.3% previously expected. Last week, brokerage firms, including JP Morgan and BofA Global Research, lowered their growth forecasts for the country’s economy after the country’s May industrial production and retail sales growth failed to meet forecasts.

S&P 500 (F) (US500) 4,388.71 −20.88 (−0.47%)

Dow Jones (US30)34,053.87 −245.25 (−0.72%)

DAX (DE40) 16,111.32 −89.88 (−0.55%)

FTSE 100 (UK100) 7,569.31 −19.17 (−0.25%)

USD Index 102.54 +0.02 (+0.02%)

Important events for today:

– Japan BoJ Monetary Policy Meeting Minutes (m/m) at 02:50 (GMT+3);
– UK Consumer Price Index (m/m) at 09:00 (GMT+3);
– UK Producer Price Index (m/m) at 09:00 (GMT+3);
– Canada Retail Sales (m/m) at 15:30 (GMT+3);
– US Fed Chair Powell Testifies at 17:00 (GMT+3);
– US FOMC Mester Speaks at 23:00 (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.

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The unexpected rise in US real estate market activity has heightened expectations for a more hawkish stance by the Fed