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US stocks decline after Fed lifts rate by 75bps

 

Thursday, September 22, 2022

The news shaping the markets today

Ukrainian President Volodymyr Zelenskyy urged the United Nations to punish Russia for its invasion and to set up a special tribunal. The US dollar index traded higher after the news.


Ireland’s KBC Bank consumer sentiment index fell to 42.1 in September, from 53.4 a month ago. With this, consumer mood declined to the lowest level since October 2008, exerting pressure on the EUR/USD forex pair.


The Hong Kong Monetary Authority increased its base rate by 75 basis points to 3.5% at its September meeting, announcing the fifth hike this year. Despite this, the HKD/USD pair remained broadly flat in forex trading this morning.


New Zealand posted a trade deficit of NZ$2.4 billion in August, versus NZ$2.1 billion in the year-ago period. Imports rising 22% year-over-year to NZ$7.9 billion exerted pressure on the NZD/USD forex pair.


Brazil’s central bank held the Selic rate unchanged at 13.75% at its latest meeting. The BRL/USD pair remained flat in forex trading this morning.

 

What’s happening: The US Federal Reserve raised the federal funds rate by 75bps at its September meeting.

What happened: US stocks had opened on a positive note on Wednesday, with investors awaiting the Fed’s interest rate decision.

However, Wall Street stocks came under pressure, despite the rate hike decision coming in line with market projections.

Why it matters: US markets staged another late-session reversal on Wednesday, with stocks giving up all the gains recorded earlier in the day after the Federal Reserve continued its aggressive monetary policy tightening in a bid to tackle inflation.

The headline CPI rose 8.3% in August, down from the 8.5% recorded in July. However, the figure was higher than expert projections of 8%.

The US central bank raised its federal fund’s rate by 75 basis points to a range between 3% and 3.25% at its latest meeting, lifting the benchmark short-term rate to its highest level since 2008.

The terminal rate, the peak spot for the Fed’s interest rates, is now expected to reach 4.6%, with policymakers saying they expect to ease rates only in 2024.

Interest rates are now expected to reach 4.4% by December, above June’s projections of 3.4%. Fed officials also indicated that rates could rise to around 4.6% by the end of next year, up from the 3.8% projected three months ago. Inflation is now expected to reach 5.4% by the end of 2022. Policymakers also said they expected inflation to begin easing next year.

Fed officials also lowered their economic growth forecast for 2022 to 0.2%, from the 1.7% growth projections in June.

The Dow Jones index, which was up more than 100 points before the Fed announcements, fell around 522 points, or 1.70%, to close at 30,183.78 on Wednesday. The S&P 500 lost 1.71% to settle at 3,789.93, while the Nasdaq 100 index declined 1.80% to end at 11,637.79.

Consumer discretionary, materials and communication services sectors were among the worst performers on Wednesday.

What to watch: Traders await data on current account and initial jobless claims from the US today. The current account deficit in the US, which grew to a record high of $291.4 billion in the first quarter, is expected to narrow to $260 billion in the second quarter. Analysts project jobless claims at 215,000 for the latest week, compared to 213,000 in the week ended September 10.

The markets today

The British pound will be in focus today ahead of the Bank of England’s policy decision

Context: The sterling fell to a fresh 37-year low on Wednesday.

Details: Traders remained on the sidelines, ahead of the Bank of England’s interest rate decision and concerns around the effects of the energy cost package announced by its new government. The BoE’s interest rate decision was delayed due to the death of Queen Elizabeth II.

Although UK’s headline inflation eased to an annual rate of 9.9% in August, from 10.1% in July, markets remained sceptical about this signalling a peaking of inflation.

The Bank of England had projected inflation to reach 13.3% by yearend and is widely expected to revise its expectations at its meeting scheduled for later today, especially after Prime Minister Liz Truss announced several new measures to curb costs.

Other global central banks have also been aggressively raising rates. The US Federal Reserve hiked its benchmark rate by 75bps on Wednesday, while Sweden’s Riksbank raised interest rates by 100 basis points on Tuesday. Earlier in the month, the European Central Bank also raised its deposit rate by 75 basis points.

The GBP/USD forex pair lost around 1% to reach 1.1271 on Wednesday, its weakest level since 1985. The sterling has shed around 16% versus the US dollar so far this year.

UK shares closed higher on Wednesday, with the FTSE 100 index rebounding from a three-week low to settle above the key 7,230 level. The index gained 0.63% to reach 7,237.64, while the FTSE 250 jumped 1.01% to settle at 18,714.67.

What to watch: Traders await the BoE’s interest rate decision today. Policymakers had raised the main rate by 50bps to 1.75% at their August meeting, which was the sixth rate hike in a row. Analysts are divided over a rate hike of 50 and 75 basis points at today’s meeting.

Other Markets: European trading indices closed higher on Wednesday, with the DAX 40, CAC 40 and STOXX Europe 600 up by 0.76%, 0.87% and 0.90%, respectively.

Support & resistances for today

Technical Levels News Sentiment
USD/JPY – 144.39 and 144.59 Negative
GBP/USD – 1.1221 and 1.1237 Positive
Gold – 1665.16 and 1669.26 Positive
WTI Crude Oil – 82.77 and 83.82 Positive
FTSE 100 – 7226.99 and 7248.59 Positive

Market snapshot

Futures at 0400 (GMT)
EUR/USD (0.9818, -0.21%) Dow ($30,156, -0.42%) Brent ($90.48, 0.7%)
GBP/USD (1.1234, -0.33%) S&P500 ($3,783, -0.62%) WTI ($83.52, 0.7%)
USD/JPY (144.93, 0.59%) Nasdaq ($11,613, -0.83%) Gold ($1,670, -0.4%)

What else to watch today

Denmark’s consumer confidence index, France’s manufacturing climate indicator and business climate indicator, Eurozone’s consumer confidence and ECB general council meeting, Philippines’ interest rate decision, Turkey’s consumer confidence, foreign exchange reserves and Central Bank of Turkey’s interest rate decision, Indonesia’s central bank interest rate decision, Swiss National Bank’s interest rate decision, Norway’s interest rate decision, Taiwan’s unemployment rate, money supply M2 and central bank of Taiwan’s interest rate decision, Hong Kong’s current account, inflation rate and interest rate decision, Belgium’s consumer confidence, Ireland’s producer price inflation, Israel’s unemployment rate and leading economic index, Mexico’s consumer prices, Poland’s money supply M3, Canada’s new home prices, South Africa’s SACCI business confidence index and interest rate decision, US natural gas stocks, CB Leading Index and Kansas City Fed’s manufacturing production index, Egypt’s interest rate decision, Saudi Arabia’s interest rate decision, Central Bank of the United Arab Emirates interest rate decision, India’s money supply M3, as well as Argentina’s current account.


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