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Weekly Market Preview
Friday, Oct 20, 2023
Federal Reserve members, including Chairman Powell, have suggested that there’s a possibility of keeping interest rates unchanged at the upcoming November FOMC meeting. This potential stance is in response to the recent increase in US bond yields, which is essentially a form of monetary tightening, as it leads to higher borrowing costs, particularly for things like mortgages. As a result, the US Central Bank may lean towards maintaining the current interest rates, even though headline inflation YoY exceeded expectations at 3.7% in September. Furthermore, the ongoing robust performance of the US labour market, illustrated by the addition of over 300,000 jobs in September, contributes to this leaning.
Market watchers will closely observe the European Central Bank’s (ECB) decision on interest rates. It’s expected that the ECB will maintain its current rates. It appears that the ECB’s board members believe the current interest rates are sufficiently high to address prevailing inflation levels, with the Consumer Price Index (CPI) headline declining to 4.3% in September. However, pursuing further interest rate hikes raises the risk of pushing the European economy into stagflation. The primary determinant of whether European interest rates have already peaked is the trajectory of global energy prices. If these prices continue to rise, it may prompt the Central Bank to consider another 25-basis points rate hike before the end of this year.
Additionally, investors are awaiting the Bank of Canada’s decision on interest rates, which is also expected to keep the current rates unchanged at 5%. Nevertheless, the persistent strength of the US labour market keeps the possibility open for the Canadian Central Bank to increase rates by 25 basis points before the end of the year.
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