- The Fed’s upward rate path continues
- Europe seeks energy security
- The Bank of England’s battle
- A new believer in Crypto
- Key data for the coming week
MSCI World Index 0.37% QTD and 21.23% YTD
Bitcoin 6.42% MTD and 59.18% YTD
Note: As of 5:00 pm EDT 21 September 2022
How heavy a price is the Fed willing to pay? In a unanimous decision the US Federal Reserve raised interest rates by 75 basis points for the third consecutive time, taking the target range for the benchmark federal funds rate to 3% to 3.25%. This is the highest it’s been since before the 2008 financial crisis. It’s forecasted to reach 4.4% this year and 4.6% in 2023. Fed Chair Jerome Powell admitted that “no one knows whether this process will lead to a recession or if so, how significant that recession would be,” and that “the chances of a soft landing are likely to diminish because monetary policy needed to be more restrictive or restrictive for longer.” The new economic projections have growth at only 0.2% this year and 1.2% in 2023, unemployment rising from the current 3.7% to 4.4% in 2023 until the end of 2024. It’s still estimated to be at 4.3% in 2025.
The USD continued to strengthen this week against the EUR, the GBP and the YEN as well as Emerging market currencies, putting pressure on their foreign currency debt and hitting commodity exporters.
This week saw health stocks ⬇ including Moderna, Pfizer, Edwards Lifesciences Corp.Abiomed, Abbvie, Bristol-Myers Squibb, Centene Corporation, Align Technology and West Pharmaceutical Services, Inc.
Energy stocks were also ⬇ including Marathon Oil Corporation, Coterra Energy Inc., Baker Hughes, Occidental Petroleum, and Halliburton.
The mega caps have had a volatile week with Microsoft, Amazon, Alphabet, and Meta Platforms all down. Nvidia and Tesla have remained relatively stable.
Europe attempts to reduce energy volatility. On Wednesday Germany nationalised gas importer Uniper and injected €8 billion into the company and bought the majority stake held by Finnish utility Fortum Oyj. France is also set to allocate €9.7 billion to take full control of utility EDF. Meanwhile, the European Commission is, according to Bloomberg, to publish a document on 28 September detailing future steps to ease volatility and increase trading volume in energy markets. There has been ongoing discussion around price caps, with countries wanting different types of caps and some opposing caps as it would provide a wrong signal and encourage energy consumption when Europe is trying to reduce its energy use.
The BoE vs the government. The BoE is due to meet tomorrow with the expectation that it will raise rates 50 basis points, with the traders raising the strong possibility of a 75 bps rise. However, this may not be enough to slow inflation due to Prime Minister Liz Truss’s plan to cap energy bills for households and companies, at an estimated cost of £150bn including an estimated £40 billion new programme to help companies with their energy bills by capping wholesale energy prices that feed into gas and power contracts. The fiscal stimulus impact of such a programme may contribute to inflation in the medium term, and it will, according to the Institute for Fiscal Studies, also would see debt continue to rise as a share of national income. More importantly, at least in the short term, the GBP has ⬇ to levels not seen in nearly 40 years and if the BoE does not act aggressively, it may cause Sterling to depreciate further, exacerbating inflation.
Crypto gets another new supporter. Nasdaq, the second-biggest US stock market operator, said on Tuesday that it was launching a digital assets services business that would begin with custody of crypto tokens for institutional investors. Nasdaq Digital Assets, will offer custody services for cryptocurrencies, including Bitcoin and Ethereum, making it a competitor to existing providers like Coinbase Global.
Key data to look out for this coming week
Friday: Spanish GDP, German S&P Globa/lBME Composite, Manufacturing and Services PMIs as well as Eurozone S&P Global Composite, Manufacturing and Services PMIs.
Sunday: The Italian parliament will elect the new president.
Monday: Germany’s IFO Business Climate, Current Assessment and Expectations surveys.
Wednesday: Germany’s GfK Consumer Confidence Survey results.
Thursday: Eurozone Business Climate and Consumer Confidence data, German inflation data, the harmonised index of consumer prices and Spanish inflation data.
In the UK:
Friday: S&P Global/CIPS Composite, Manufacturing and Services PMIs.
Monday: A speech by the BoE MPC member Silvana Tenreyro.
Tuesday: A speech by BoE chief economist Huw Pill.
Wednesday: A speech by Deputy governor of the BoE Sir Jon Cunliffe.
In the US:
Friday: S&P Global Composite, Manufacturing and Services PMIs and a speech by Fed Chair Jerome Powell.
Monday: The Chicago National Activity Index.
Tuesday: Durable goods, Nondefence capital goods orders, Consumer Confidence, housing price indices, and new home sales data.
Wednesday: Pending home sales data.
Thursday: GDP, initial and continuing jobless claims, Core personal consumption expenditures data, and Personal consumption expenditure prices data.
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