The US Fed has taken a hawkish stance again. New Zealand is entering a technical recession

By JustMarkets

The Dow Jones Index (US30) decreased by 0.68% at the stock market’s close yesterday, while the S&P 500 Index (US500) added 0.08%. The NASDAQ Technology Index (US100) closed Wednesday positive by 0.39%.

The US Federal Reserve expectedly left rates unchanged yesterday at 5.25% but predicted further increases at the next meetings. The Fed now sees its peak rate at 5.6% in mid-2023, up from its previous forecast of 5.1% in March, which suggests two more hikes.

The main points from Jerome Powell’s speech at yesterday’s press conference:

• The FOMC is committed to getting inflation back to 2.0% to achieve price stability.
• The rate was raised to 5% from March 2022 through May 2023, which is a statistically unconventionally fast “move,” but given the data coming in, the FOMC has decided to move at a more moderate pace and consider raising the rate at future meetings.
• Given the lag in the effect of monetary policy, a rate hike in July 2023 depends on many variables, so the FOMC is closely watching labor market conditions, inflation data and financial sector conditions over a 3-month period.
• The FOMC does not see the effects of stress in the banking sector.
• The expected median rate at the end of 2023 is 5.6%,2024 is 4.6%, and 2025 is 3.4%.
• Asset reduction in Treasury securities will continue (QT-quantitative tightening).

BofA Global Research said it now expects two more quarter percentage point interest rate hikes from the US Federal Reserve this year, raising its final rate forecast to 5.5%-5.75%.

Amazon (AMZN) is considering using AMD’s artificial intelligence (AMD) chips in its cloud business.

Stock markets in Europe were mainly up Wednesday. Germany’s DAX (DE30) gained 0.49%, France’s CAC 40 (FR40) gained 0.52%, Spain’s IBEX 35 index (ES35) jumped by 1.20%, and Britain’s FTSE 100 (UK100) closed positive by 0.10% yesterday.

The European Central Bank (ECB) will almost certainly raise borrowing costs today and leave room for further increases as it continues to fight high inflation, even as the Eurozone economy weakens. More Eurozone countries are signaling a technical recession (2 consecutive declines in GDP per quarter). Eurozone’s inflation is still high for the ECB at 6.1%, more than three times its target of 2%, and core prices, which excludes food and energy, are only beginning to slow. Economists expect another 0.25% increase in July before the ECB pauses in fall 2023.

Asian markets traded higher yesterday. Japan’s Nikkei 225 (JP225) gained 1.47% on the day, China’s FTSE China A50 (CHA50) was up by 0.14%, Hong Kong’s Hang Seng (HK50) ended the day down by 0.58%, and Australia’s S&P/ASX 200 (AU200) closed positive by 0.32%.

The Japanese yen fell to an 8-month low against the dollar amid hawkish statements from the US Federal Reserve. The Japanese government is once again talking about currency intervention. Japan’s Chief Cabinet Secretary pointed out that excessive fluctuations in the currency are undesirable, with a senior currency official saying that the government would take action if necessary. Last year the weakening of the yen to 146 yen per dollar triggered the first intervention.

New Zealand’s gross domestic product (GDP) fell by 0.1% in the first quarter of 2023. This is the second consecutive quarterly decline in GDP, indicating that New Zealand has entered a technical recession. The contraction was caused by a decline in manufacturing, which fell by 3.5%, and transportation, port, and warehouse services, which fell by 2.2%. The Reserve Bank of New Zealand (RBNZ) raised its benchmark rate to a 14-year high at its May meeting, and it was probably the last increase this year.

S&P 500 (F) (US500) 4,372.59 +3.58 (+0.082%)

Dow Jones (US30)33,979.33 −232.79 (−0.68%)

DAX (DE40) 16,310.79 +80.11 (+0.49%)

FTSE 100 (UK100) 7,602.74 +7.96 (+0.10%)

USD Index 103.02 -0.32 (-0.31%)

• – New Zealand GDP (q/q) at 01:45 (GMT+3);
• – Australia Unemployment Rate (m/m) at 04:30 (GMT+3);
• – China Industrial Production (m/m) at 05:00 (GMT+3);
• – China Unemployment Rate (m/m) at 05:00 (GMT+3);
• – China Retail Sales (m/m) at 05:00 (GMT+3);
• – Switzerland Producer Price Index (m/m) at 09:30 (GMT+3);
• – Eurozone Trade Balance (m/m) at 12:00 (GMT+3);
• – Eurozone ECB Interest Rate Decision at 15:15 (GMT+3);
• – Eurozone ECB Interest Monetary Policy Statement at 15:15 (GMT+3);
• – US Retail Sales (m/m) at 15:30 (GMT+3);
• – US Initial Jobless Claims (w/w) at 15:30 (GMT+3);
• – US Empire State Manufacturing Index (m/m) at 15:30 (GMT+3);
• – Eurozone ECB Press Conference at 15:45 (GMT+3);
• – US Industrial Production (m/m) at 16:15 (GMT+3);
• – US Natural Gas Storage (w/w) at 17:30 (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.