The FOMC plans to hold another rate hike before the end of the year. New Zealand is likely to avoid recession

September 21, 2023

At Wednesday’s stock market close, the Dow Jones Index (US30) decreased by 0.22%, while the S&P 500 Index (US500) lost 0.94%. The NASDAQ Technology Index (US100) closed yesterday negative by 1.46%. Stocks declined after the US Federal Reserve took another pause but signaled that interest rates will still be rising. Policymakers said another 25 bps rate hike is likely this year, and the FOMC dot plot showed that the target for the federal funds rate in 2024 and 2025 will be 50 bps higher than forecast in June. The Fed’s hawkish stance drove the 10-year T bond yield to a 16-year high and sent stocks and stock indexes tumbling.

Yesterday, the FOMC voted unanimously to keep the target range for the federal funds rate unchanged at 5.50%, with 12 of 19 policymakers expecting another 25 bps rate hike this year. At the press conference, Fed Chairman Jerome Powell said the following: “The FOMC is prepared to raise rates further if necessary, and we intend to keep policy at a restrictive level until we are confident that inflation is moving steadily downward toward our objectives.”

The FOMC’s median forecast for US economic growth in 2023 was raised to 2.1% from 1.0% in June. In addition, the unemployment rate forecast for 2023 was lowered to 3.8% from June’s forecast of 4.1%. The core PCE price deflator (the US Federal Reserve’s inflation indicator) for 2023 was lowered to 3.7% from the June forecast of 3.9%. Markets are now pricing in a 31% probability that the FOMC will raise the lending rate by 25 bps at its next meeting on November 1 and a 54% probability that the rate will be raised by 25 bps at the December 13 meeting.

Bank of America raised its year-end price target for the S&P 500 (US500) to 4,600 from a previous forecast of 4,300, saying macrocycle indicators, including valuations and positioning, are giving bullish signals.

Alphabet’s (GOOGL) stock price is down by more than 3% on news that the company has managed to recover only 40% of the mobile traffic it previously received through its mapping service after Apple replaced Google Maps on its iPhones in favor of its own app.

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Equity markets in Europe were mostly up yesterday. Germany’s DAX (DE40) increased by 0.75%, France’s CAC 40 (FR40) gained 0.67% yesterday, Spain’s IBEX 35 (ES35) added 1.30%, and the UK’s FTSE 100 (UK100) closed up by 0.93%. European equities were supported yesterday amid signs of slowing price pressures in Europe and the UK after producer prices in Germany fell in August, and consumer prices in the UK showed a sharp decline. In the UK, the overall inflation rate fell from 6.9% to 6.2% y/y, while core inflation (which excludes food and energy prices) fell from 6.8% to 6.7% y/y. The more detailed report also showed a decline in services inflation, which had been a major concern for the MPC amid soaring wage growth.

New car registrations in the Eurozone rose by 21.0% y/y in August to 788,000 units, the largest increase in 5 months. The Eurozone’s construction output rose by 0.8% m/m in July, the largest increase in the last five months.

WTI crude oil prices suffered moderate losses on Wednesday after the US Federal Reserve raised its interest rate forecast for next year, which helped the dollar recover and could curb economic growth and energy demand. Tensions in the oil market are expected to continue as OPEC+ production cuts are extended.

Asian markets were mostly down yesterday. Japan’s Nikkei 225 declined by 0.66%, China’s FTSE China A50 (CHA50) fell by 0.36%, Hong Kong’s Hang Seng (HK50) lost 0.62% on the day, and Australia’s ASX 200 (AU200) was negative by 0.46% on Wednesday.

Japan’s exports declined by 0.8% y/y in August, which was less than expectations of 2.1% y/y. In addition, imports fell by 17.8% y/y in August, the largest decline in three years but less than the expected 20.0% y/y.

New Zealand’s GDP for the quarter grew by 0.9%, better than expectations of 0.4%. Stronger-than-expected economic growth could be a challenge for the RBNZ, which has said it needs to see a slowdown in economic growth to lower inflation and inflation expectations. New Zealand’s central bank forecast in August that the country would enter recession in the third quarter of 2023, while in updated forecasts released last week, the Treasury said it expects the country to avoid recession.

S&P 500 (F)(US500) 4,402.20 −41.75 (−0.94%)

Dow Jones (US30) 34,440.88 −76.85 (−0.22%)

DAX (DE40) 15,781.59 +117.11 (+0.75%)

FTSE 100 (UK100) 7,731.65 +71.45 (+0.93%)

USD Index 105.36 +0.16 (+0.15%)

News feed for 2023.09.19:

– New Zealand GDP (q/q) at 01:45 (GMT+3);
– Switzerland SNB Monetary Policy Statement at 10:30 (GMT+3);
– Switzerland SNB Interest Rate Decision at 10:30 (GMT+3);
Switzerland SNB Press Conference at 11:00 (GMT+3);
– Norwegian Interest Rate Decision at 11:30 (GMT+3);
– UK BoE Interest Rate Decision at 14:00 (GMT+3);
– UK BoE MPC Meeting Minutes at 14:00 (GMT+3);
– US Initial Jobless Claims (w/w) at 15:30 (GMT+3);
– US Philadelphia Fed Manufacturing Index (m/m) at 15:30 (GMT+3);
– US Existing Home Sales (m/m) at 17:00 (GMT+3);
– Eurozone ECB President Lagarde Speaks (m/m) at 17:00 (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.

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The FOMC plans to hold another rate hike before the end of the year. New Zealand is likely to avoid recession