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Market News Good dollar! The probability of the Fed raising interest rates this week is high, and Powell's speech may be the most important
Good dollar! The probability of the Fed raising interest rates this week is high, and Powell's speech may be the most important
The Fed's two-day meeting will be the highlight of the week ahead, and the next driver for markets will be the clues it gives on future rate hikes. The Fed is widely expected to raise interest rates by 50 basis points on Wednesday and again next month, but Friday's very popular consumer price index report sparked expectations that policymakers could raise rates faster and higher. Markets fear a recession, so stock market investors are eyeing bonds, which are sending fresh signals that the economy may be weakening.
2022-06-13
8912
GMT+8 At 02:00 on June 16, the Federal Reserve will announce its interest rate decision, policy statement and economic forecast. Then at 02:30, Fed Chairman Powell held a monetary policy press conference. The Fed is widely expected to raise interest rates by 5 basis points this time, but strong inflation data in May has worried the market about whether policymakers will take more aggressive measures or expect the pace of interest rate hikes to accelerate in the future.
The Federal Reserve is to release new economic and interest rate forecasts, but Powell's comments on rate hikes in the summer and fall could set the course for volatile financial markets. U.S. stocks and bonds have been volatile as investors worry that inflation may not have peaked and that higher interest rates could lead to a recession.
"I think what really matters is what Powell said at the meeting and whether he gave clear guidance on where the economy is going in September, " said Michael Schumacher, director of macro strategy at Wells Fargo. "If he does, he only has It's only when he's showing a hawkish stance, and if he doesn't, people think he's dovish." Schumacher said the fed funds futures market was pricing in a 56-basis-point rate hike on Wednesday, a basis point equal to 0.01% .
U.S. stocks fell after the May consumer price index (CPI), which was released last Friday, far exceeded expectations. The S&P 500 is down 5.1% for the week, after closing at 3,900 on Friday, down 2.9%.
"The market wants some clear and convincing evidence that the Fed can do this without triggering a recession," said Lori Calvasina, head of U.S. equity strategy at RBC Capital Markets. "The market will take clues from the economic data, maybe you will be stuck in purgatory for a while."
Friday's inflation report was a negative catalyst for markets, which were already pricing in fears of high inflation and a recession. The U.S. CPI rose 8.6% year-on-year, well above the 8.3% expected by economists polled by Dow Jones.
It also intensified the debate over whether the Fed would consider raising rates by 75 basis points and continue to do so at a more aggressive pace. Barclays and Jefferies both revised their forecasts on Friday to include a 75 basis point hike on Thursday, though other economists still see a 50 basis point hike.
Goldman economists revised their forecasts on Friday, adding 50 basis points of rate hikes in September, on top of 50 basis points each on Wednesday and July.
JPMorgan economists expect Fed officials to provide new rate forecasts that reflect the accelerating pace of policy tightening, but they still expect a 50 basis point hike on Wednesday. They expect the median Fed rate forecast to show the federal funds rate at 2.625% at year-end, well above the 1.875% forecast in March.
"Chairman Powell said he wants to guide expectations, not surprise them," said JPMorgan economists. "With little appetite for a surprise rally, it looks like a 50-basis-point rate hike will follow next week."
RBC's Calvasina said she was awaiting comments from Powell and did not expect any surprises from the meeting. She said she was encouraged that some Fed officials appeared ready to raise rates more quickly earlier this year and give themselves flexibility later. "I think the market likes that, and it reflects that they don't want to do too much damage to the economy," she said. "I'd love to hear more about this flexibility."
In addition to the Fed, there are several important economic reports this week, including the producer price index PPI on Tuesday, retail sales on Wednesday, housing starts on Thursday, and industrial production on Friday.
In the bond market, U.S. Treasury yields rose after the inflation report warmed up, but the yield curve also flattened, meaning that yields on shorter maturities such as 2-year bonds will move toward yields on longer maturities such as 10-year bonds. move closer. Two-year U.S. Treasury yields hit 3.06% on Friday, with a spread of just 10 basis points. If the 2-year yield is higher than the 10-year yield, the curve inverts, a recession signal .
Calvasina said the U.S. stock market is now reflecting only a slight recession. In a more traditional recession, the S&P 500 has lost an average of 32%, and in this economic cycle, the index is down nearly 20%. The strategist said there is a 60% chance that the market has bottomed . "I think the valuation is reasonable enough that you can go to your shopping list and buy the companies you've always wanted to buy, " she said.
US Dollar Index Daily Chart
At 11:25 on June 13, GMT+8, the US dollar index was at 104.4572
The Federal Reserve is to release new economic and interest rate forecasts, but Powell's comments on rate hikes in the summer and fall could set the course for volatile financial markets. U.S. stocks and bonds have been volatile as investors worry that inflation may not have peaked and that higher interest rates could lead to a recession.
"I think what really matters is what Powell said at the meeting and whether he gave clear guidance on where the economy is going in September, " said Michael Schumacher, director of macro strategy at Wells Fargo. "If he does, he only has It's only when he's showing a hawkish stance, and if he doesn't, people think he's dovish." Schumacher said the fed funds futures market was pricing in a 56-basis-point rate hike on Wednesday, a basis point equal to 0.01% .
U.S. stocks fell after the May consumer price index (CPI), which was released last Friday, far exceeded expectations. The S&P 500 is down 5.1% for the week, after closing at 3,900 on Friday, down 2.9%.
"The market wants some clear and convincing evidence that the Fed can do this without triggering a recession," said Lori Calvasina, head of U.S. equity strategy at RBC Capital Markets. "The market will take clues from the economic data, maybe you will be stuck in purgatory for a while."
Friday's inflation report was a negative catalyst for markets, which were already pricing in fears of high inflation and a recession. The U.S. CPI rose 8.6% year-on-year, well above the 8.3% expected by economists polled by Dow Jones.
It also intensified the debate over whether the Fed would consider raising rates by 75 basis points and continue to do so at a more aggressive pace. Barclays and Jefferies both revised their forecasts on Friday to include a 75 basis point hike on Thursday, though other economists still see a 50 basis point hike.
Goldman economists revised their forecasts on Friday, adding 50 basis points of rate hikes in September, on top of 50 basis points each on Wednesday and July.
JPMorgan economists expect Fed officials to provide new rate forecasts that reflect the accelerating pace of policy tightening, but they still expect a 50 basis point hike on Wednesday. They expect the median Fed rate forecast to show the federal funds rate at 2.625% at year-end, well above the 1.875% forecast in March.
"Chairman Powell said he wants to guide expectations, not surprise them," said JPMorgan economists. "With little appetite for a surprise rally, it looks like a 50-basis-point rate hike will follow next week."
RBC's Calvasina said she was awaiting comments from Powell and did not expect any surprises from the meeting. She said she was encouraged that some Fed officials appeared ready to raise rates more quickly earlier this year and give themselves flexibility later. "I think the market likes that, and it reflects that they don't want to do too much damage to the economy," she said. "I'd love to hear more about this flexibility."
In addition to the Fed, there are several important economic reports this week, including the producer price index PPI on Tuesday, retail sales on Wednesday, housing starts on Thursday, and industrial production on Friday.
In the bond market, U.S. Treasury yields rose after the inflation report warmed up, but the yield curve also flattened, meaning that yields on shorter maturities such as 2-year bonds will move toward yields on longer maturities such as 10-year bonds. move closer. Two-year U.S. Treasury yields hit 3.06% on Friday, with a spread of just 10 basis points. If the 2-year yield is higher than the 10-year yield, the curve inverts, a recession signal .
Calvasina said the U.S. stock market is now reflecting only a slight recession. In a more traditional recession, the S&P 500 has lost an average of 32%, and in this economic cycle, the index is down nearly 20%. The strategist said there is a 60% chance that the market has bottomed . "I think the valuation is reasonable enough that you can go to your shopping list and buy the companies you've always wanted to buy, " she said.
US Dollar Index Daily Chart
At 11:25 on June 13, GMT+8, the US dollar index was at 104.4572
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