It’s all about rates this week… The RBA promises more pain to come and the Fed expects to go for it again
ASX futures pointed to a slower market today, down 3 points to 6,971 this morning, as investors watch the upcoming US Federal Reserve meeting for signs of slowing upside.
At home, yesterday’s seventh consecutive rate hike takes us to a nine-year high of 2.85% and the RBA shows no signs of backing down after strong rate hikes well into the new year.
“The board’s base case remains that interest rates will need to rise further to bring inflation back to target and our forecast has been prepared on that basis,” Governor Philip Lowe said Tuesday evening.
“However, we are not on a predefined path. If we have to move to bigger increases again to get inflation back on target, we will.
“Equally, if the situation requires us to remain stable for a while, we will. Given the uncertainties surrounding the outlook, we will be monitoring economic developments and inflationary pressures very carefully over the summer.
The Australian dollar looked a bit deflated overnight, trading at 63.97 US cents.
US stocks stagnate
US stocks closed lower overnight, for the second time in a row, as strong jobs and construction data dampened hopes of a more dovish rate stance from the US central bank.
The Dow Jones index lost 80 points or 0.2% while the S&P 500 lost around 16 points or 0.4% and the Nasdaq index fell 97 points or 0.9%.
“Mega cap” tech stocks fell with Amazon down 5.5%. Uber shares soared 12% on the gig economy giant’s strong fourth-quarter earnings forecast. Pfizer rose 3.1% on higher sales estimates.
The Fed expects it to go even stronger
Well, we just did, and now it’s America’s turn to swallow the anti-inflation medicine again.
“A 75 basis point (bp) increase seems well priced in,” said MFS Investment Management chief economist and portfolio manager Erik Weisman.
“The real question: what kind of signaling, if any, will there be for the December rate increase. Another 75 in December would indicate that the Fed is far from done. But, an index at 50 basis points in December could be a sign that the Fed is moving towards greater incrementalism, with a clearer view of the path to the terminal rate (i.e. “the pivot “).
Weisman advised investors to watch the bank’s timing carefully: “Parsing Fed language is never easy, but investors should really look for anything that more clearly indicates what the terminal rate will be and how quickly we’ll get there. will arrive.
“The timing of the game over matters because we can’t even begin to think about cuts (in what appears to be the best telegraphed recession ever) until we have a better understanding of the timing of the maximum policy rate.”
Although a recession may be heralded, it will take some time to get there with the lag effect of past increases.
“When will the shift come, given relative strength, and will investors, politicians and financial pundits have the patience to wait?” Weisman asked.
“For now, the locomotive may be about to jump the tracks, but the bar car is still serving drinks and the dancing continues in the caboose.”
In other news
Global oil prices rose around 2% yesterday as investors bet on the easing of ongoing COVID-19 restrictions in China.
Brent crude rose US$1.84 or 2% to US$94.65 a barrel, while US Nymex crude rose US$1.84 or 2.1% to US$88.37 a barrel .
Base metal prices rose yesterday, led by nickel, up 8.3%. Other metals rose in the more modest range of 0.5 to 1.9%.
Gold futures rose US$9.00 an ounce or 0.5% to US$1,649.70 an ounce, while spot gold traded near 1,650 US$ per ounce at the close in the United States.