What will Fed say
2022.12.14 08:15
What will Fed say
Budrigannews.com – On Wednesday, the most difficult task for the Federal Reserve of the United States would be to persuade markets that it will not cut interest rates again next year. The waning inflation wonders if it will bother.
On Tuesday, news of a second consecutive month of surprisingly soft U.S. consumer price inflation (CPI) quickly dampened the initially buoyant stock and bond markets’ enthusiasm.
With wild swings in the VIX index (.VIX) over the course of two days, the edgy volatility can be attributed in part to short-term options plays. Stock futures remained muted on Wednesday in anticipation of the Fed’s decision, forecasts, and chair Jerome Powell’s advice, despite the fact that Wall Street still ended the day comfortably higher at the close.
After four rate hikes in a row of 75 basis points, it is now expected that the Fed will move down to half-point clips. The real issue lies in what transpires in the coming year.
The current prices of Fed funds futures indicate that there is a better-than-even chance that the Federal Reserve will follow up this week’s half-point increase with a smaller 25-basis point (bp) increase at its first two meetings in 2023, stopping short of 5% by March.
Morgan Stanley, for instance, anticipates that the Fed’s February meeting will be the only additional 25 basis point increase, setting the peak funds rate at 4.625 percent.
Even more significant, futures continue to project a half-point rate cut between then and the end of the year, and they are mulling over the possibility that Fed rates will be lower than at the end of this one.
In recent months, the Federal Reserve has frequently objected to the notion that it will resume easing next year. With “dot plot” rate forecasts, economic projections, and a news conference to convey its feelings, markets now wonder if it will be as vocal this time.
The 3-month-to-10-year yield curve inverted further beyond 90 bps, reaching its most negative level in 40 years, while ten-year U.S. Treasury yields retreated slightly to 3.46 percent initially.
Asian stocks were up a little, but European bourses were down. After the CPI on Tuesday, the dollar remained close to six-month lows.
The dollar fell first against the euro and sterling due to expectations that the European Central Bank and Bank of England’s half-point rate increases on Thursday would be accompanied by more hawkish rhetoric than the Fed.
On Tuesday, the yields on UK government bonds significantly deviated from the trend toward lower sovereign borrowing rates, reaching their highest levels in over a month for both the 10-year gilt and the 30-year gilt. This was due to the UK’s labor strikes and rising wage inflation.
As annual consumer price increases continue to be in double digits, news on Wednesday of a larger-than-expected retreat in British inflation last month did little to halt that trend.
The ongoing crypto quake continued to make headlines elsewhere.
The chief of the cryptocurrency exchange stated on Wednesday that deposits were returning after reports on Tuesday that Binance saw withdrawals of $1.9 billion in 24 hours, the largest outflow of this kind since June.
Legal experts stated that the failure of FTX founder Sam Bankman-Fried to obtain release on bail in the Bahamas raises the likelihood that he will consent to being extradited to the United States to face fraud charges.
More Ex-FTX CEO arrested
According to three people who have direct knowledge of the situation, some of the banks that provided Elon Musk with a loan of $13 billion in order to purchase Twitter are getting ready to write losses on the loans this quarter. However, they are likely to do so in a way that does not significantly impact their earnings.
Inditex, which owns Zara and posted a 24% increase in net profit as price increases helped offset weakening global demand for clothing, was one of the stock movers in Europe.
After the biotechnology company’s experimental vaccine and Merck & Co. Inc.’s (MRK.N) best-selling drug Keytruda demonstrated promising results in a skin cancer study, Moderna Inc. (MRNA.O) surged 19.63% on Wall Street on Tuesday.
The following are important developments that could guide U.S. markets later on Wednesday:
The press conference and policy decision of the Federal Open Market Committee of the United States;
The prices of November’s imports and exports;
The earnings of American corporations:
Lennar and Nordson attended the Bengaluru meeting of the G20 Finance and Central Bank Deputies.
