01 Dec

The US Federal Reserve will reduce the pace of rate hikes. Inflation in the Eurozone is falling

December 1, 2022

By JustMarkets

Federal Reserve Chairman Jerome Powell said Wednesday that the rate hikes are likely to slow, but the peak rate will be higher than previously expected, as there is a long way to go to curb inflation. About 70% of traders expect the Fed to slow rate hikes to 50 basis points in December, down from the 75 basis points seen in the previous four meetings. The Fed has targeted the labor market in its fight against inflation, hoping that tighter monetary policy will help reduce demand enough to curb wage growth and, ultimately, inflation. Such “dovish” statements by the head of the US Federal Reserve were seen by investors as positive. Stock indices jumped after Powell’s speech. At the close of the stock market yesterday, Dow Jones (US30) gained 2.18%, and S&P 500 (US500) added 3.09%. The NASDAQ Technology Index (US100) jumped by 4.41% on Wednesday.

The US inflation-adjusted GDP rose by 2.9% year-over-year for the latest quarter. For Federal Reserve policymakers, the overall GDP growth picture is what they want to see in line with the economy’s long-term trend.

Elon Musk believes a recession is coming and fears that Federal Reserve attempts to reduce inflation could make it worse. In a tweet yesterday, the Tesla CEO and the Twitter owner called on the Fed to immediately lower interest rates. Otherwise, the Fed risks increasing the likelihood of a serious recession.

Stock markets in Europe traded higher yesterday. Germany’s DAX (DE30) gained 0.29%, France’s CAC 40 (FR40) added 1.04%, Spain’s IBEX 35 index (ES35) increased by 0.49%, Britain’s FTSE 100 (UK100) closed Wednesday up by 0.81%.

The oil price rose to $85-86 on news that OPEC+ countries are willing to cut OPEC production even further. The talks are about an additional 2 million BPD of production cuts.

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In November, inflation in the Eurozone fell from 10.6% to 10% year-on-year due to falling energy prices. Core inflation remained stable at 5%. Nevertheless, economists warn that lower inflation is unlikely to prevent the European Central Bank from raising interest rates as food inflation rises. Whether this is the peak of overall inflation remains to be seen. But the current economic situation could push the European Central Bank to hike less by 50 basis points next month

The KOF economic barometer fell slightly in November and now stands at 89.5 points. This is the fifth consecutive drop in the barometer. The outlook for the Swiss economy in the coming months thus remains subdued.

Oil rose almost 3% yesterday on a decline in US crude oil inventories. Traders are also betting that China will ease Covid restrictions and OPEC countries will resort to deeper production cuts this Sunday.

Asian markets mostly rose yesterday. Japan’s Nikkei 225 (JP225) decreased by 0.21% for the day, Hong Kong’s Hang Seng (HK50) jumped 2.16%, and Australia’s S&P/ASX 200 (AU200) was up 0.43% by the end of the day.

Asian indices were boosted by growing optimism that China is easing its stance on COVID-19-related restrictions. Despite high infection rates, several cities in the world’s second-largest economy lifted regional blockades.

S&P 500 (F) (US500) 4,080.11 +122.48 (+3.09%)

Dow Jones (US30) 34,589.77 +737.24 (+2.18%)

DAX (DE40) 14,397.04 +41.59 (+0.29%)

FTSE 100 (UK100) 7,573.05 +61.05 (+0.81%)

USD Index 106.03 -0.79 (-0.74%)

Important events for today:
  • – Japan Manufacturing PMI (m/m) at 02:30 (GMT+3);
  • – China Caixin Manufacturing PMI (m/m) at 04:45 (GMT+3);
  • – German Retail Sales (m/m) at 09:00 (GMT+3);
  • – Switzerland Retail Sales (m/m) at 09:30 (GMT+3);
  • – Switzerland Consumer Price Index (m/m) at 09:30 (GMT+3);
  • – Spanish Manufacturing PMI (m/m) at 10:15 (GMT+3);
  • – Italian Manufacturing PMI (m/m) at 10:45 (GMT+3);
  • – French Manufacturing PMI (m/m) at 10:50 (GMT+3);
  • – German Manufacturing PMI (m/m) at 10:55 (GMT+3);
  • – Eurozone Manufacturing PMI (m/m) at 11:00 (GMT+3);
  • – UK Manufacturing PMI (m/m) at 11:30 (GMT+3);
  • – Eurozone Unemployment Rate (m/m) at 12:00 (GMT+3);
  • – US PCE Price index (m/m) at 15:30 (GMT+3);
  • – US Initial Jobless Claims (w/w) at 15:30 (GMT+3);
  • – Canada Manufacturing PMI (m/m) at 16:30 (GMT+3);
  • – US FOMC Member Bowman Speaks at 16:30 (GMT+3);
  • – US ISM Manufacturing PMI (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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